Unpaid Credit Card Balances Increase

The Toronto Star reported today how the amount of unpaid Canadian credit card debt being written off by issuers has risen nearly 60% to record levels in the second quarter compared with the same time last year, says a new report from Moody’s.

What’s more, credit card delinquency rates – the number of accounts 30 days past due – rose 23% in the April-June period versus last year, the reports shows.

The credit rating agency said the charge-off rate hit a new high of 4.8%, which is a 57% increase from 3.07% for the second quarter last year.

“The intensity of the current recession has led to charge-offs that have exceeded previous cyclical highs by a relatively wide margin,” states the quarterly Moody’s Canadian Credit Card Index.

A charge-off is when a creditor gives up collecting a delinquent debt.

It then charges the debt off its books.

It’s the tenth consecutive quarter of year-over-year increase in the index, “and sets a record high charge-off rate for the third consecutive quarter,” Moody’s said.

It said the June charge-off rate alone was 4.96%, another record, and coincides with record levels of personal bankruptcies.

Moody’s said the charge-off rate is rising alongside unemployment in Canada, which hit 8.7% in August.

“Trends in the unemployment rate and credit card charge-offs are highly correlated. Both measures tend to lag the general economy,” the report states.

Moody’s is calling for unemployment in Canada to peak at 9.6% in the second quarter of 2010, and for the charge off rate to also rise in the coming months, “though at a relatively slower pace than earlier in the year.”

The delinquency rate was 2.82% in the second quarter, up from 2.29% a year ago.

However, Moody’s pointed out that the second-quarter level dipped slightly from 2.9% in the first quarter, due in part to tax refunds received by some consumers.

The delinquency rate measures account balances whose monthly payments are more than 30 days past due.

Related Topics

Credit Card News / Credit Cards

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