(Bloomberg) -- When retailers shutter their stores, credit card debt lives on.
Not everyone seems to know that. An increasing number of customers aren’t paying balances on credit cards linked to bankrupt retailers, Equifax Inc. said Wednesday in a statement.
“Consumers believe that with a store going bankrupt, those accounts are no longer valid and so they stop paying,” Amy Crews Cutts, chief economist at the credit bureau, said in a phone interview. “That belief is very misguided because the agreements are not between the companies and the customer, but with the lender.”
Store card issuers are struggling with late payments as America’s merchants shut brick-and-mortar outlets by the thousands. The closures have been driven by consumers’ shift to online shopping, coupled with the retailers’ high debt burdens.
The severe delinquency rate -- those 60 days or more past due or in collections -- increased to 4.65 percent in March for private-label retail credit cards, up 57 basis points from last year. Late payments have been rising steadily, on a seasonal basis, since 2013 and are now at the highest level since early 2011, according Equifax data collected in March.
Card companies have taken measures to protect themselves. Synchrony Financial, the largest private-label card issuer, increased reserves to help cover loan losses last year.
Card holders can suffer if they think the debt will go away with the store. The lenders behind the private label cards continue to report to credit bureaus, according to the Equifax statement. That could hurt a credit report and the ability to borrow on good terms in the future.
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