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Are Credit-Card Payment Improvements Unsustainable? (Capital One Thinks So)

Capital One said significantly fewer of its credit card holders defaulted on their card debts in the third quarter — but the bank’s CEO called that situation “unsustainable” and said he expects the chargeoff rate to bounce back in 2015 to 2013 levels, according to American Banker.

The net chargeoff rate in Capital One’s U.S. credit card business fell by 23 percent in Q3 compared with the same period a year earlier, the company reported on Thursday (Oct. 16). But CEO Richard Fairbank said the loss rates were unusually low and he didn’t expect them to remain there. “We aren’t counting on further economic improvement helping our credit loss, nor are we projecting renewed economic weakness,” Fairbank said.

The bank, the fifth-largest U.S. credit card issuer, plans to boost its provision for credit losses by 17 percent.

Most other top credit-card issuers sounded upbeat about their credit quality during analyst calls last week. Citigroup suggested that credit performance might improve, JPMorgan Chase described the credit environment as benign, Bank of America said its card business’s credit quality improved in Q3, and Synchrony Financial — the private-label card issuer being spun off from General Electric — called asset quality stable.

But American Express CFO Jeffrey Campbell said he expects his company’s chargeoff rates to eventually rise somewhat from the current low levels. However, he did not provide a timetable for when that might happen.

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