Late Credit Card Payments Soar To Record Highs For Second Quarter

The percentage of past due credit card payments zoomed to a record high in the second quarter of the year, according to the American Bankers Association. The high number of late payments is believed to be due in part to the recent rising costs for gasoline, as well as the unexpected repair and relocation costs many Americans have recently faced because of catastrophic hurricane damages. Unplanned for expenditures such as these have made it difficult for many people to pay their bills on time, and industry analysts expect the trend to continue or worsen.

The ABA says the seasonally adjusted percentage of credit card accounts that are more than 30 days overdue rose to 4.81% during the second quarter of 2005. Coming on the heels of a delinquency rate of 4.76% in the first quarter, the new higher figure is the highest calculation since the association began collecting such information in 1973. The association’s chief economist, Jim Chessen, explained a number of suspected reasons for the rise. "The rise in gas prices is really stretching budgets to the breaking point for some people," Chessen said. "Gas prices are taking huge chunks out of wallets, leaving some individuals with little left to meet their financial obligations." He added that other factors have contributed to consumers having less money to pay their bills, such as personal savings rates dipping while interest rates are climbing.

With smaller amounts of personal savings set aside, people have less of a cushion to fall back on when there are unexpected large jumps in energy costs. As the rate of late credit card payments has risen to record highs, the personal savings rate has dipped to record low, coming in at negative .6% in July. Rising borrowing costs could also be a factor affecting the spike in credit card delinquencies, since the Federal Reserve has been slowly raising rates since June of 2004. The prime lending rate of commercial banks has risen to 6.75%, which is the highest rate in the past four years. The prime lending rate is used by many credit card companies in setting their interest rates.

Because of the factors affecting the American economy, credit card delinquencies are expected to remain high and perhaps even continue to rise. And when credit card companies don’t get paid, they have trouble paying their own debts. In court filings for bankruptcy proceedings by Northwest Airlines, the airline has asked a bankruptcy judge to force American Express Corporation to pay $63.4 million that Northwest says it is owed by the credit card company. The money the airline is demanding represents payments made by American Express cardholders to purchase tickets, and the airline says that the credit card company has withheld part of the payments due.