“Surprise” consumer insolvencies have increased by over 5% in February compared to a year ago, according to a report released Thursday.

Equifax Canada defines a “surprise” consumer insolvency as a consumer who paid the required payments on all of their credit products within 30 days of the payment due date one month prior to becoming insolvent.

In February 2009, 71% of all dollars of outstanding credit that was declared insolvent during the month of February was considered current (i.e., up-to-date) in January 2009. This represents an increasing trend of higher “surprise” insolvencies from consumers that were considered current in the prior month.

The report also looked at the same statistics by credit product types. The report revealed that the highest increase in “surprise” insolvencies was found in Revolving Loans, such as lines of credit. Of all dollars declared insolvent during the month of February 2009, 78.3% of these insolvent dollars were considered current in January 2009. This represents an increase of 9.2% on a year-over-year basis.

In addition, Equifax Canada data indicates that the amount of credit outstanding when a consumer becomes insolvent has been significantly increasing. In February 2009, the average amount of credit outstanding (excluding mortgages) at the time of insolvency was approximately $35,000. This represents an increase of 14% as compared to February 2008. Nearly 40% of the total outstanding amount relates to credit cards.

”These statistics indicate that credit providers need to be especially vigilant in managing the risk in their existing portfolios. Delinquency or behavioural scores alone are not sufficient in detecting surprise insolvencies. Dual strategies incorporating both delinquency and bankruptcy risk are highly recommended”, says Nadim Abdo, vice president of Equifax Canada Consulting Solutions.

Equifax Canada counts both bankruptcies and consumer proposals (renegotiating unmanageable debt loads) as insolvencies. In addition, Equifax Canada counts joint insolvencies made by spouses as two separate insolvencies since the information is added to two separate consumer credit files.

IE