Quarterly credit card payment rates dropped for the first time in five years, as did one-month excess spread numbers. Yet the numbers did not revive concerns about whether consumers are finally becoming overwhelmed with debt.
According to the latest assessment by Moody's Investors Service, credit cardholders paid back 19.27% of their balances in the first quarter of 2007, down from the first-quarter 2006 rate of 19.56%. It was also the first year-over-year decrease in the quarterly payment rate after 17 consecutive quarters of improvements, according to the rating agency.
That was not the only performance gauge to break a long winning streak. On a monthly and quarterly basis, credit card charge-off rates increased. For March, the charge-off rate was 4.64%, up from 3.46% a year ago, while going up to 4.49%, from 3.34% in the same period a year ago.
The numbers coincided with monthly and quarterly drops in one-month excess spread, according to the Moody's data. Excess spread is an indication of profits from credit card securitizations, as well as other asset classes. On a quarterly basis, excess spread was 7.57%, down more than 2% from an historical high of 9.17% from the same period a year earlier.
Still, the rating agency is optimistic. March's excess spread numbers, it noted, managed to beat the long-term excess spread average of approximately 5.68%.
Yield on credit card portfolios as a percent of total loans, which represents the annualized percentage of income from finance charges, and fees collected during the month, were down to 19.59%, from 19.68% a year ago. The drop marks the second year-over-year decrease in yield after twenty-eight consecutive months of increase.
Yet, many variables influence yield on a portfolio, including pricing competition. Card issuers still have a lot of discretion when it comes to pricing credit card services, which could be one of many countervailing forces, said William Black, a Moody's analyst.
As for that 19.27% payment rate, it was not wholly unexpected, because it followed several months of decelerating year-over-year improvements, Moody's said. Rising interest rates, plus a softer real estate market diminished the using home equity credit lines.
"When you talk about the fact that the payment rate has dropped and yield has dropped, you are still talking about very marginal changes," Black said. "These are not huge swings in cardholder behavior and historically speaking, performance is quite strong."
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