You're a Responsible Borrower? 'So What?' Say Credit Card Banks

banks and borrowers paying bills
banks and borrowers paying bills

Lately, the banks that issue credit cards have seen some significant improvement in the way their customers have been treating them.

But it probably comes as no big surprise to discover that the card companies aren't repaying the favor.

Last week, several card issuers released May figures on the health of their credit card lending. Specifically, each bank spelled out the percentage of their loans that they don't expect to be able to collect (known as the charge-off rate) as well as the percentage of accounts that have payments that are at least 30 days late (the delinquency rate).

Turns out, the numbers of deadbeats and slackers are dwindling. Most issuers saw substantial improvements on both measures. American Express (AXP), Bank of America (BAC), Capital One (COF), JPMorgan Chase (JPM), and Citigroup (C) all saw declines in both charge-offs and delinquency rates. Discover Financial (DFS) also saw delinquency fall, although charge-offs rose slightly.

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As CEO Bill Hardekopf commented, "Fewer delinquencies and smarter lending practices are good for banks." Credit card users, though, aren't seeing much of a break from the improvement in delinquencies and charge-offs.
We're getting punished for good behavior

Over the past several years, the interest rates on credit cards have moved higher, even as interest rates on savings accounts gradually fell. And more recently, card rates have barely budged, with fixed-rate cards not having moved since March, and variable-rate cards falling by just 0.03 percentage points.

%Gallery-152460%With average interest rates hovering in the 14% range and even low-rate specialty cards still fetching double-digit rates, it's clear that banks are doing their best to collect as much interest as they can in light of new consumer protection regulations that limit their ability to raise rates on existing cardholders.

What that means is that no matter how favorable the economy may get, you shouldn't expect to see card rates go down, making it that much more important to avoid carrying a balance on your cards if at all possible.

Motley Fool contributor Dan Caplinger thinks banks should share the wealth. You can follow him on Twitter here. The Motley Fool owns shares of Bank of America, JP Morgan Chase, and Citigroup. Motley Fool newsletter services have recommended writing a covered strangle position on American Express.

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