One In Eight Dollars In Receivables During November Collection Period Has Been Written Off As Uncollectable

Tyler Durden's picture

Taking a playbook straight from Wall Street, consumers maxed out their store-branded retail cards and decided simply to not pay them in November-December. And even that could not prevent December retail sales from coming it at below expectations: one wonders just what it is that will drive the retail dynamo that ever more clueless pundits on CNBC claim will boost 2010. Here are the facts: "Fitch notes that in December more than one in every eight dollars of receivables was written off as uncollectable during the November collection period on an annualized basis." Well, at least the government (if not private retailers) got something out of this and managed to revise November sales slightly higher. Good luck repeating this.

One knows when a "rating agency" tells you things are bad and getting worse, it behooves one to listen:

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

Despite the elevated chargeoff and delinquency measures, Fitch expects retail card ABS ratings to remain stable throughout 2010. Excess spread remains robust, which coupled with loss coverage multiples and other structural protections will shield investors from potential downgrades or early amortization scenarios.

In December, Fitch's Retail Credit Card Chargeoff Index snapped a two-month decline, rising 122 basis points (bps) to 12.56% from the previous month. 

Throughout 2009, chargeoffs surpassed the previous record (12.25% in January 2005) five times, establishing a new all-time high of 12.81% in August. Throughout the year, retail chargeoffs averaged 11.88% (more than 42% above the historical average of 8.34%).

Perhaps consumer have finally figured out the great scheme: if nobody will lend to you, what use are good FICO numbers? Which is why spend, spend, spend, and max out anything and everything you can. As for the consequences: well, just write a letter to Obama, explaining how your $50,000 in credit card debt makes you too big to fail. If you are lucky, you just may get bailed out. Holding a few trillion in Interest Rate swaps with Goldman as a counterparty sure would help.

High unemployment and ongoing household deleveraging will continue to limit
demand for consumer credit in 2010. Consumer confidence as measured by the
Conference Board remains historically low despite rising in the most recent
period and unemployment is expected to remain elevated averaging 10.2% in
2010. 'Households will remain cautious with their spending and further
curtail their use of retail cards in 2010,
' said Dean.

This does not bode well for prospects of a robust rebound in retail sales or
credit usage in 2010 as the employment situation and economic environment
overall continues to weigh on consumers' spending decisions. The latest Fed
figures show revolving credit usage decreased at an annual rate of 18.5% in
November - the largest dollar-value drop since 1968 and the 14th consecutive
decline since October 2008. As long as the employment and income growth remain
weak, demand for consumer credit - especially retail credit - will be limited.

Well, with credit increasingly limited, thank god consumers at least have jobs, savings and steady incomes to fall back on. Otherwise one may be forced to take all those predictions of strong retail performance in 2010 with just a grain of salt.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
deadhead's picture

wait till you see chargeoffs in feb, march, april.....

TraderMark's picture

Strategic default is the new black.

MarketTruth's picture

Agree, and it makes perfect sense to simply do a strategic default. So what is the next step?

Bank Run Bitches!!!

Sudden Debt's picture

with about 95% of American's being obese, I don't think we should be affraid of any Run :)

Paul S.'s picture

Retail sales for the month were 353 billion.  Roughly 25% of all transactions are cashless, so 88 billion of this was charged.  If one dollar in eight was defaulted on, then retail sales were actually 342 billion.  Back of the envelope calculation but it gives you a ballpark.

TomJoad's picture

Had to take the wife's late model but just out of warrantee POS in to the GM Dealer on Monday (Verdict: $1200 for a solenoid) but anyway, during the 3 hours I had to wait for the good news I was trapped in the customer lounge with CNBC locked on at full volume. Holy Christ on a cupcake!!!, what the hell kind of hopeium are those clowns smoking? What alternative universe are they smoking it in!?! I was flabbergasted and looked around the holding pen to see if there was anyone I could confirm the Twilight Zone nature of the experience with. Just a few other suckers...errr- customers who seemed to find the 24" culvert of disinformational sewage flowing into the room to be perfectly acceptable. I went outside and sat on the curb. I would like to say "on the curb in the snow" but I am in Florida, so it was merely cold and windy.


Jump! You Fuckers!

Cursive's picture

@TomJoad  :D

Holy Christ on a cupcake!!!

looked around the holding pen

find the 24" culvert of disinformational sewage flowing into the room to be perfectly acceptable

Anonymous's picture

Fuckin jerkoff, that's what you get for buying a gm anyway.. Don't support bankrupt companies!

TomJoad's picture

1. I didn't buy the car, my wife did, before we even met. She is a Michigander, and bought it under the advice of her father, a long retired engineer for the big 3.

2. I didn't know it was out of warrantee until I got the $120 bill for the fucking diagnostic.  I do all my own work on my cars, but I loathe her Chevy and refuse to besmirch my hands with its shittyness. It's a 2005 for god's sake, why should it need the transmission pulled?

3. It's not polite to call somebody a "Fucking jerkoff" you worthless shitstain.

Tipo anónimo's picture

Nicely rebutted, and with bullet points, no less.

Mrmojorisin515's picture

why would you go to a dealer if your warrantee is up?  The dealers typically charge you double what a regular shop would.  Just saying, if you want to avoid being screwed, stay away from the dealers, also the principal of it is good considering they were bailed out by the government, and since they aren't selling car's they are trying to move into supplying shops with parts.  So i'm competining against my own money in a ways.

Parts Plus auto suppliers

SimpleSimon's picture

Steps to an individual bailout:

- Got an underwater mortgage?  Rent a place at half the cost, then walk away.  Last one is the sucker who makes the most mortgage payments while house prices continue to fall as their neighbors walk away.

- Got credit lines?  Max them out to stock up on food, clothing, shelter, necessities (gold?).  Declare bankruptcy.

Then, get a secured credit card and with 2-3 years of god behaviour, your FICO will be back to good.  FHA will likely lend within a year begging you to buy another house.

Cindy_Dies_In_The_End's picture

Uh Simple, you better read up on BK before you do that. Any charges above about $200 are look at probably fraudulent in a 6 month period prior to declaring. The Trustee can then legally look back 2 years, and convert your ass to a Chapter 13. Plus this is after you have to pass the means test.


If they think you're charging away, they can force you to pay that, convert you, or even throw out your BK.


Please PLAN your BK before you file people or on your head be it.


PS- I did not junk you

Anonymous's picture

"Ethics and moral hazard are for the 'little' people."

-Lloyd Blankfein

Ivanovich's picture

This is extraordinarily bullish apparently.  The market took all the negative data (again) and is going up up up.

Cursive's picture

If this were September 2008 and this kind of news came out, we'd have begun a steep decline to 666.  Oh, what a difference a year and half, denial and scads of liquidity can make.

docj's picture

And a different President, of course.  Can't discount the effects of the Hopium pumping.

Anonymous's picture

Yah, good point. The media used to moan about tent cities and soup kitchens when the u/e rate under Bush hit 4.6% (horrors!).
Now, 10+% under Obama? No big deal. Funemployment. Green shoots.

Anonymous's picture

Yah, good point. The media used to moan about tent cities and soup kitchens when the u/e rate under Bush hit 4.6% (horrors!).
Now, 10+% under Obama? No big deal. Funemployment. Green shoots.

Handle with care's picture

This is what the first stage of a collapse in a society looks like.  Not rioters at the barricades, but the silent masses passively withdrawing their support from the system as they begin to view it as illegitimate and no longer working in their interests.


Despite technology, we still can't be watched 24 hours a day so societies only continue to function if the vast majority abide by its written and unwritten rules even when they're not being watched and know they can't be caught.


As a society loses its legitimacy in the minds of more and more people, they begin to withdraw this passive support and begin, in ever increasing numbers, to break rules and laws when they think they can get away with it.  As they see more and more other people doing whatever they can get away with for their own benefit, more and more people no longer wish to be left as the "suckers" and they begin to also participate.


Gaming the credit card system as per this report, running as much as you can outside the tax system, even littering, are all responses to a society on a downward spiral.  The central authority responds to this by enacting ever more draconian tax and law enforcement measures against the masses which further alienates people into withdrawing their passive support and which then leads to even more draconian counter-responses by central authorities and so on.


This cycle can continue for sometime depending on the initial strength of the society and the willingness of the leadership to enact draconian measures (The less willing, the slower the spiral).  The bottom of the spiral is an abrupt dislocation.  The other side of the break is very hard to predict, which is what makes it so dangerous.

Mad Max's picture

Great comments, sadly.

Long armband manufacturers.

Anonymous's picture

I have dual American-Canadian citizenship (was born in Canada) and the bailouts was the first time I've ever really seriously considered moving there. Canada has problems of course, but it seems basically intact in a way that America no longer seems to be.

The bailouts said basically "you are a peon, America is for the elite." Of course, lots of other societies are like this... but America always had a mystique of being special. After the bailouts, America is no longer special.

So this is another sign... people *seriously* considering leaving.

yourapostasy's picture

So this is another sign... people *seriously* considering leaving.

It is way beyond the consideration stage for many. Just one example I am personally familiar with: solidly upper-middle class, young family, not materially impacted by the recession, their employer begged them to stay. No debt other than a nearly-paid-off mortgage, globally portable skillsets, multilingual, contribute quietly but significantly to their neighborhood community. Precisely the kind of taxpayers that most nations salivate after, and they would nominally have nothing to worry about even in the current recession.

They quit their jobs last year and are emigrating to Argentina to take up permanent residence within several weeks, after some trial stays over the past few years. As big a mess as the Kirchners' party has made of that nation, this family judged their future prospects so much worse in the US that they started planning and taking concrete steps several years ago. They're taking their capital with them of course when they leave (seed money for a new business in Argentina), but that isn't what should preoccupy government bureaucrats. Their key assets are their skills, attitudes, character and experience they carry around in their heads. These are the enabling assets of highly-developed economies. That wealth-generating capacity is leaving, for at least a generation if not longer; their children are already facile with Latin culture and norms, and disdain what they perceive as worse corruption/uncertainty/hypocrisy in the US.

My SO and I are along the same emigration path, and have a similar near-affluent type of profile. As soon as I diversify my business' account and revenue bases to a 60-40 mix between Rest Of the World and the US respectively, we're leaving to establish a second home to support globalizing my business. If the business and political climate in the US was more sane and conducive to global operations, we'd stay, though.

Anonymous's picture

My wife a shopaholic, and this month we got a letter from citi that she went 1450$ over the limit, which you normally can't do (she shops till the card runs dry, and then she takes out another).

I found that strange, and was thinking that the banks might be doing this on purpose to boost the markets. This month the bills come in and I think a lot of people won't be able to pay their bills, which will cause Q1 to give BAD earnings.

I'm still long on my bank stocks, but after earnings I'm selling and buying june puts.

Anonymous's picture

It is amazing to go through the checkout line in a store and realize that every eighth person, on average, is walking out with stuff they will not pay for!

Jendrzejczyk's picture

I've grown tired of the endless harassment by the big banks looking for payments that are a little late. I now answer their calls with "American taxpayer may I help you?" and then quiz them on the exact amount of TARP funds they have yet to repay.

When I tell them I'll gladly accept a phone payment for a slight $100,000 convenience fee they are not amused----AT ALL!

Next time I'm going to tell them I'm waiting on approval to become a bank and as soon as I can borrow money from the FED at .0003 % interest I'll start making payments.

Just trying to learn how to play by the(ir) rules.

Anonymous's picture

Just strategically default. That's what they do.

Anonymous's picture

Phone calls are easy to stop. I got a Boost monthly plan, and choose not to be listed. My Dad is pissed off because they keep calling him trying to get access to me. It ain't happening. If they got my phone number, I'd just switch to a new phone, just like a drug dealer.

Snootchie boochies.

Anonymous's picture

Which is it ZH, either borrowers have gone on strike (as mentioned in your consumer credit article last week) or no one will lend to them? It can't be both

Anonymous's picture

Actually Anon 193756, it can be both. The TBTF are borrowing at zero from the Fed and collecting interest from the Treasury, at nominal zero risk.

So rather that the Timmy and Benny admitting that they are printing money to expand the national debt, they are using their surrogates to do it. Nice and dirty. Usually called laundering money.

And these very same TBTF do not want to lend to the Great Unwashed.

And the Great Unwashed are saying "take a hike", I don't want your money anyway.

And there are many variations to the above. Desperate, good businesses that cannot finance inventories, people with good credit standing on the sidelines- likely for a very long time.

carbonmutant's picture

A population maxing out their credit cards is like a giant fireworks display.

It's fun to watch but eventually the sky goes dark.

Unscarred's picture

This doesn't help Visa, Amex, or Discover (or GE Capital, or retail firms who issue in-house cards), but this should play nicely into the Q4 Chinese GDP figures.