By Jared A Levy
I believe the answer to the titular question is, “not totally.” There are glimmers of positivity, at least in some areas. Earlier this week, we got a look into charge-off rates from the major credit card issuers and the news was positive overall. Discover, JP Morgan Chase, American Express, Bank of America, and Capital One all saw reductions in their charge-off rate.
In the first quarter of 2010, the industry average charged-off rate was just below 10% of all balances. Back in the second quarter of 2007, that rate was about 3.8%.
The trend has moved lower with all the large credit card lenders. AMEX has the least amount of overall charge-offs among the major companies, with its rate at 5.5%. Details of the report are here.
What is the charge-off rate?
We all know that if we don’t pay our bills, after a certain amount of time (some very forceful letters, phone calls, and potential fees), creditors such as the aforementioned banks will either internally or externally attempt to collect the debts owed to them. Sometimes, a third-party debt collector may act on behalf of the creditor for a fee.
In other instances, the creditor will “charge-off” the debt that is owed to them and perhaps sell that debt to a collection company for pennies on the dollar. The company will attempt to get as much as they can (they will usually start with the face value of the debt along with any fees or interest that are associated). This process usually begins after about 180 days.