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July 15, 2010

Who's right? The American Banker’s Association or The Standard & Poor’s/Experian Consumer Credit Default Index?

Who is right?

I am stumped.  Perhaps you can help me explain what seems like a contradiction. 

CNNMoney.com recently published the following headline: Credit card delinquencies fall to 8-year low.  This story is based on a report by the American Banker’s Association (ABA).  On the other hand, The New York Times published an article about how credit card default rates are still rising to record levels.  This story is based on a study completed by The Standard & Poor’s/Experian Consumer Credit Default Index. 

The ABA posits in the CNN article that “About 3.88% of bank credit card accounts were past due by 30 days or more in the first quarter of the year.”  However, The Standard & Poor’s/Experian Consumer Credit Default Index indicates, as reported by the New York Times that “In the three months through April the default rate on credit card loans had climbed to 9.14 percent, the highest since the index began to be calculated in 2004.” To be in default, an account must be at least six months behind, unless the lender has already written it off or the borrower has filed for bankruptcy.

Perhaps I am comparing apples to oranges. I can think of two reasons: 1) The ABA is looking at “bank credit card accounts”, perhaps a more restricted data set, and 2) the definitions of past due and in default differ.  But, do these reasons--and others unbeknown--adequately explain a difference of 5.26 percent?  Intuition tells me that the ABA number should be much higher, perhaps as much as double the 9.14 percentage.

I am sure that the key to resolving my confusion is a better understanding of each organization’s methodology in assessing the data.  However, the discrepancy just does not make much sense to me at all.  

What do you think?


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Yes, these figures didn't make sense to me either. I think they are withholding statistics and records, which fully answers our questions.

It's also up to one's opinion and the firm's stand in interpreting the results. The figures could change as well.

That's a very interesting question. I can think of two items that could contribute to the discrepancy (although, like you, seeing their algorithm would be even more helpful)

1)Another Mark Twain quote: There are lies, d-mned lies, and statistics. Data can be formulated to create a bias that the company/organization/person wants to use to prove a point.

2) If the ABA is only looking at bank credit cards this could skew the data. Unfortunately, many consumers are duped into considering paying credit card bills on time before paying their student loans or mortgage, etc. Because credit companies are so vocal and aggressive in collections, consumers have misconceptions (i.e. a credit company can take their house) and they also want the harassing calls to stop.

In the case of a loan with collateral, this item can just be taken so the debt holder may only send a few notices and then repossess a car for example. And of course Sallie Mae has rights above any other lender to get paid on their loans (i.e. tax refund garnishments).

So, many times it's these loans that are most important that are left to wallow rather than the loans that are truly unsecured.

Education is really important in this area!

BUT- I cannot imagine this last point is the only reason the numbers are so different. It's a huge gap. So I refer back to point 1!

"Figures don't lie, but liars figure." -Mark Twain

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Upon returning from my wonderful honeymoon in Jamaica in October 2008, I received what I thought was an ordinary American Express bill, but to my surprise it was a disappointing letter informing me that my credit line was reduced by about 65% for a highly suspicious and discriminatory reason. Considering my excellent credit score and pristine payment history, it just didn’t make sense. However, what does make sense are the unfair and insidious policies that I have uncovered when asking why. It is time to change them.

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