Credit Card Delinquencies Rise

As unemployment creeps upward, credit card delinquencies are rising too. According to the most recent data collected for the Fitch Credit Card Index, credit card delinquencies – those accounts that are more than 60 days past due – have risen 36 percent in the past two quarters. An executive at Fitch Ratings says that this level of loss for credit cards is "unprecedented."

In February 2009, credit card write-offs increased to nearly 9 percent, a 20-year high. Many analysts fear that job losses will reveal consumers whose debt loads are so high that traditional means of debt reduction won't be very effective in helping them get a new start.

Standard repayment plans may ask the consumer to repay 2-3 percent of their debts off each month in exchange for more favorable terms like lower interest rates or frozen account balances. With consumers who carry an extremely high level of debt, even these comparatively low payments may exceed their earning capacities.

With changes to the bankruptcy laws in the US, which took effect in late 2005, consumers are now waiting much longer to seek help. While the average household carries about $11,000 in credit card debts, the average consumer looking for assistance commonly has balances that exceed $25,000.

These overwhelming credit card debts are leaving consumers looking for better repayment options, as well as options that can help them cope with job losses and reduced incomes.

There are no easy fixes in place. In April, President Obama lobbied credit card industry executives personally at White House meetings, where they were told that Congress is preparing additional regulations that are consumer-friendly. Proposed changes include requiring cardholder agreements to be presented in "plain English"; limiting or prohibiting sudden or unmotivated interest rate increases; simplifying interest rate calculations; and curbing the issuers' ability to increase minimum payments without sufficient notice to the cardholder.

Stiffer regulations for credit card issuers have already been passed by Congress, but don't take effect until July 2010. The pending legislation would make some of the approved reforms effective immediately.