Credit Card Payments Falter as Economy Slows

More Americans fell behind on their credit card payments in July, reflecting the tough economic climate and a spike in bankruptcy filings, bond rating service Moody’s Investors Service said Thursday.

The percentage of credit card loans on which a payment was at least 30 days past due rose to 5.06% last month, up from 4.41% a year earlier. The delinquency rate has been rising for eight months.

Moody’s measures the credit card delinquency rate by tracking the status of $335 billion of card loans that have been securitized--that is, packaged and sold to investors as bonds.

The rising delinquency rate coincided with a slowdown in consumer spending in recent months. The government reported Thursday that U.S. consumer spending grew at its slowest pace in nine months in July, edging up 0.1%.

A surge in bankruptcy filings also is contributing to the jump in card delinquencies, analysts say.

Americans filed for bankruptcy protection in record numbers in the first half of this year, many probably trying to file before expected federal law changes make it harder for them to wipe out their bad debts. That proposed legislation still is hung up in Congress.

The total number of new bankruptcy filings in the second quarter was 400,394, an increase of 24.5% over the same quarter in 2000 and up 9% from the first quarter of this year, the Administrative Office of the U.S. Courts said last week.

The jump in bankruptcies and late payments will translate into more loan losses for card issuers, said William Black, a senior Moody’s analyst in New York.

Already, lenders are boosting card chargeoffs--meaning they are writing off more of their card loans as uncollectable.

Moody’s index of card chargeoffs rose to 6.47% in July from 5.16% a year earlier. That is the sum of card loans written off as an annualized percentage of total loans.

Even so, high credit card interest rates are protecting many lenders’ earnings, analysts say. The average annualized yield on the credit card securities tracked by Moody’s was 19.39% in July, up marginally from 19.34% a year earlier.