Credit charge off or credit card charge-off is an accounting term. The charge-off is the proportion of credit card debt divided by the average total outstanding credit card balances owed to the credit card issuer.
How is the charge off-calculated?
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180 days is the critical figure. In simple terms that means the credit card customer has failed to make a payment for six months and the credit card issuer has given up hope of collecting the debt.
Are charge-offs regulated?
Absolutely. There is zero discretion for credit card issuers. If the customer misses six consecutive payments, the account is charged off.
What is the current charge off rate for the big card issuers?
The latest average charge off rate for the big US credit card issuers is 3.29% That covers the three months period to June 2017.
Is that good?
Well, it HAS inched up during last quarter after declining for each of the past 24 quarters.
Should we be worried about the charge-off rate rising?
There is no cause for panic. Charge-off rates were about `10% in 2010. We will not witness a return to the sort of charge-off rates seen after then financial crisis. Rates have arguably been at historically low rates the past few years.
What is the total of US credit card customers’ debt?
US credit cardholders have $764bn of outstanding debt. Chase customers have $135bn of outstanding card debt giving it a market share of 17.7% of US card debt.
And the other big card issuers?
The biggest four issuers have nearly 60% of all card debt. After Chase, the other big players are Citi (15.7% market share), Capital One (11.9%) and Bank of America (11.6%);
What about American Express?
It ranks only 7th with a market share of about 6%, just behind Discover (7.8%) and Synchrony (6.5%) and ahead of Wells Fargo with 4.5%
The market seems really consolidated?
Totally. The big 8 issuers referred to above have almost 90% of the market.
How do the big issuers charge-off rates compare?
The charge-off rates vary enormously. Amex has traditionally targeted the mass affluent and affluent segments of the market. By focussing on the most creditworthy customers Amex charge-off rates have ranged from 1.5% to 2.3% over the past four years.
Discover has currently a charge-off rate of 2.79%, up from 2.27% a year ago; Chase’s credit card charge-off rate is a fraction above 3% and it has said that on newer card accounts the charge-off rate may go as high as 4.5%.
What about credit card issuers who target sub-prime lenders and the store cards sector?
Alliance Data Systems is big in the store cards sector. It reported net charge-offs of 6.2% in the second quarter, up from 5.1% a year ago.
