The Next Crisis In The 'Cards'

The subprime mortgage mess may be grabbing the headlines, but the rapid growth of personal debt from mortgages, credit cards and other loans is part of a far larger problem facing millions of Americans.

Get ready for the next great financial uncertainty: credit cards.

That, at least, is what Washington is now worried about (in addition to all the other stuff). The logic is simple: If people are having trouble paying for the house they bought, then they might not be able to afford all the stuff they purchased - on credit - to put into that house. That's one reason why Washington is suddenly getting so inquisitive about credit-card defaults.

According to a well-informed source, the government's Office of the Comptroller of the Currency is now trying to fast-track a monitoring system for credit cards that will give the nation's bank regulator a monthly look at how well people are doing paying their bills. Right now, banks provide that information only on a quarterly basis. And the data for the last quarter wasn't very encouraging.

The American Bankers Association says that in the first quarter of this year, 4.51 percent of people who had bank credit cards were late by 30 days or more in paying their bills. That was up from 4.38 percent during the latest Christmas shopping season.

Moody's, the rating service, thinks the situation is getting worrisome. It says banks had to charge off 6.27 percent of their credit-card billings in April - meaning they don't expect payment. And Moody's thinks that rate will eventually be higher than the 7 percent charge-offs seen during the 1991 and 2001 recessions. That's why the OCC is riding to the rescue - a little late, but better than never.

"Regulators are finally trying to get better data on banks," says a person who has a copy of the OCC's credit-card proposal. "There's an effort to get some insight into what's going on."

Specifically, the OCC was rushing to set up a system by the end of September of shared national data on the default rate on credit cards and the rate banks collect on that debt, but obviously that has yet to come to fruition.

Walter

Sources: OCC, Moody's, WSJ, Bloomberg