Americans Continue To Slash Credit While Bank Of America (NYSE: BAC) And Citigroup (NYSE: C) Battle Credit Card Defaults

Though many major banks, such as Bank of America (NYSE: BAC) and Citigroup (NYSE: C) continue to report double-digit credit card default rates, Americans have also continued to cut down total credit levels. The Federal Reserve announced Friday that U.S. consumer credit dropped $17.5 billion in November, marking the largest monthly drop on record.

Just last month Bank of America said its credit card default rate for November was 13 percent, the highest among all the large U.S. banks.   Citigroup was the next highest, posting a rate of 10.29 percent.  Defaults basically represent credit card loans the bank does not expect to be repaid.

Bank of America and Citigroup are the only two large card issuers with rates in excess of 10 percent.  This is noteworthy since Bank of America is the largest credit card issue in the U.S., while Citigroup is the largest issuer of cards with the MasterCard (NYSE: MA) label.

Brian T. Moynihan, Bank of America’s new chief executive has already stated that the bank needs to reduce its loss rate on credit cards.  The bank’s November default rate was slightly lower than the 13.22 percent it posted in October, providing some evidence that credit borrowings beginning to regain some footing.

 The decline in overall U.S. consumer credit is the tenth straight, which marks the longest streak since the data began being collected in 1943.

Revolving debt, which includes items such as credit cards, provided the lion share of the decline. That debt group shed $13.7 billion in November as consumers paid down credit cards and the like.  Non-revolving debt, such as auto loans, fell $3.8 billion according to the Fed report.

However, the recent debt reduction has not trumped consumer spending, which was up 1.1 percent in November.  Rather, consumers are turning to cash and debit cards for purchases.  U.S. consumer spending has risen in six of the past seven months.