Consumer Defaults On Store-Branded Credit Cards Near Record Levels

Consumers in the U.S. defaulted at near-record levels of store-branded credit cards during the holiday season, according to Fitch ratings, which said that the trend is likely to continue throughout 2010.

The December data showed that retailer wrote off one in every eight dollars during the November collection period as uncollectable. This trend along with the high unemployment rate has Fitch forecasting that rates for retail credit card delinquency will remain elevated throughout the first half of 2010.

"We do not foresee any meaningful improvement in the retail card credit quality in the coming months," said Fitch Managing Director Michael Dean. "U.S. consumers remain under stress on a number of fronts, most notably on the employment front, and retail card charge offs will continue to reflect those pressures."

In December the index snapped a two-month decline, rising 122 basis points to 12.56 percent from the previous month. The record high was set in August 2009 at 12.81 percent, while charge offs averaged 11.88 percent for the year.

"While results were negative throughout the year, we have seen the pace of deterioration moderate more recently," said Dean. "Certain issuers have also tightened underwriting standards and become more selective when adding new accounts, which should help mitigate loss rates longer term."

Delinquencies that had passed into the late stage category after 60 days fell by 15 basis points in December to 5.22 percent. Late stage delinquencies averaged 5.09 for 2009.

More than 165 retailers are incorporated into the Fitch ratings including Wal-Mart (NYSE: WMT), Sears (NASDAQ: SHLD), Home Depot (NYSE: HD), J.C. Penney (NYSE: JCP), Best Buy (NYSE: BBY) and Dillard's (NYSE: DDS).

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