Credit Card Charge-Off Rates Hit Record High in Q2

The average rate at which banks are writing off credit card debt hit a new high in the second quarter of 2010, according to data released last week by the Federal Reserve.

Fed data revealed that the average seasonally adjusted annualized charge-off rate for credit cards was 10.66 percent in the April through June period, up from 10.07 percent in the first quarter of 2010. The quarterly statistical release, Charge-off and Delinquency Rates on Loans and Leases at Commercial Banks, includes all banks that report to the Fed.

Charge-off statistics have been kept by the Fed since 1985, and the 10.66 percent rate in the second quarter of 2010 is the highest on record. The 10.20 percent credit card charge off rate in the third quarter of 2009 had been the previous high-water mark.

The Fed also upwardly revised the charge off rates from the previous quarter. When initially reported in May, the average credit card charge-off rate for the first quarter stood at 9.95 percent; in the latest release, that figure was revised to 10.07 percent.

The seasonally adjusted delinquency rate for credit cards decreased to 5.01 percent in the second quarter from 5.70 percent in the first quarter of 2010. The credit card delinquency rate was the lowest since the third quarter of 2008, according to Fed data.

The charge-off rate for all loans and leases at commercial banks was 2.86 percent in the second quarter, down from 2.92 percent in the first quarter of 2010.

Delinquencies, however, spiked to 7.32 percent in the quarter, the highest reading on record. The increase was led by a surge in real estate delinquencies, which topped 10 percent for the first time ever. Residential real estate loans were delinquent in the quarter at an 11.4 percent annual rate while 8.79 percent of commercial real estate loans were delinquent.