While some Washington politicians claim the economy is recovering nicely, credit card default rates indicate consumers are still facing very significant struggles.
The default rates reported by some of the country's major credit card issuers were up again in August. Two issuers, Bank of America and Citigroup, showed their highest default rates since the onset of this current economic crisis.
Here are the August delinquency rates compared to the July figures by
issuer:
* Bank of America delinquencies increased to 14.54 percent from 13.21 percent
* Citigroup delinquencies increased to 12.14 percent from 10.03 percent
* Discover delinquencies increased to 9.16 percent from 8.43 percent
* American Express delinquencies decreased to 8.5 percent from 8.9 percent
* Capital One delinquencies decreased to 9.32 percent from 9.83 percent
These default rates indicate issuers are still under financial stress and that cardholders might expect the rate and fee increases as well as the tightened credit market to continue.
"These high default rates are very concerning. The July default rates took a slight decrease which gave everyone some hope that the worst may be over, and that is what makes these August numbers so disappointing," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.
"These issuers can't just lose this money, shrug it off and operate as usual. They have to find a way to increase their income and that will mean continued changes to their cardholders. That probably means some additional increases in the rates and fees, as well as some reductions in their reward programs."
On Tuesday, Bank of America announced its new BankAmericard Basic Visa card that will be available in October and makes a few changes to the traditional credit card. It will be advertised as a simpler, straightforward card with one page of terms and conditions, and a flat fee of $39 for late payments.
There will be no fee for going over the credit limit. It will have one fixed rate that will fluctuate with the prime rate. The rate will be prime plus 14 percent, so the current rate will be 17.25 percent. This rate is significantly higher than the current average APR of 12.09 percent reported from the LowCards Complete Credit Card Index.
"This is the 'plain vanilla' card that was suggested by President Obama. It is simpler, but there is a higher price to pay for it. Obviously this is only a good choice if the interest rate on your current card is over 17 percent," says Hardekopf.
By the beginning of November, the American Express Blue Card is increasing the standard APR for purchases to the prime rate plus 11.99 percent. At the August notification, this rate was 15.24 percent. This is a variable rate. (For cash advances, American Express will increase the APR to the prime rate plus 21.99 percent. At the August notification, this rate was 25.24 percent. This is a variable rate.)
