The Amount of Consumer Credit At Risk Jumps In February

During the first quarter of the year, the factor that has significantly impacted credit performance has been unemployment. Unemployment – as well as underemployment – has a direct impact on not only consumer liquidity, but consumer credit risk as well.

To give ARM companies a monthly barometer of how bankruptcy and employment levels are likely to impact collections, Kaulkin Ginsberg has created the Consumer Default Risk Index (CDRI). This indicator shows the dollar amount of outstanding credit that is at risk of non-contractual default due to bankruptcy.

Growing unemployment has caused the CDRI to rise by nearly 115% compared to its mark this time last year. This rise has translated into over $24 billion worth of consumer at risk during the month of February.

Another factor influencing the increase in risk is the rising number of consumer bankruptcy filings. During 2008, consumer bankruptcy filings were at their highest levels since 2005, and current trends appear to point towards a similar trajectory for this year as the February filing period saw a 24% increase in consumer bankruptcies.

The likelihood of a monthly improvement to the amount of credit at risk remains improbable as the March unemployment rate has been calculated 8.5%. For debt collection companies, the increase in the CDRI indicates a likelihood of increased placements, with a caveat. For credit issuers, the likely way to reduce the amount of credit at risk will be a continued reduction in the extension of credit.

Kaulkin Ginsberg publishes two proprietary indices to track consumer liquidity. The Consumer Default Risk Index (CDRI) provides a monthly barometer of how bankruptcy and unemployment levels are likely to impact debt collection and is used to calculate the dollar amount of consumer credit at risk.  The Credit Card Performance Index (CCPI) is a monthly index tracking the performance of securitized credit card receivables for the ten largest credit card master trusts in the United States.

Findings are published each month in the Kaulkin Ginsberg Consumer Finance Report. For more information, visit: www.insidearm.com/go/research/consumer-finance-report.

Dimitri analyses trends in strategic receivables management within the consumer finance sector, including the banking, credit card and mortgage markets. Contact Dimitri at 240-499-3840 or by email.