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.