Plastic alert

7 September 2007 By Martin Hutchinson

Americans owe $900bn on plastic, a subprimesized debt load. With house prices no longer rising, they ll have trouble paying it back. Losses could be large for loans without collateral. But a meltdown might have a good effect: rethinking this highrate highloss business.

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Total nonmortgage consumer debt increased at a 4.5% rate in 2006 and a 5.6% annual rate in the second quarter of 2007, according to the Federal Reserve statistics. Revolving consumer debt, primarily credit cards, increased at a 6.3% rate in 2006 and an 8.4% rate in the second quarter of 2007, to a June 2007 total of $903.9bn. Interest rates on credit cards averaged 12.51% in 2005, 13.21% in 2006 and 13.46% in June 2007.

Capital One's loan loss chargeoff rate on its credit card business was 4.04% (before adjustment for consumer statement period change) compared with 3.29% in the second quarter of 2006.

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