Consumers lowered the credit card balances on average almost 11 percent over the past 12 months, and fewer were late on their payments in the first quarter, pushing down the 90-day delinquency rate nearly 16 percent over a year ago, TransUnion said today. The quarterly analysis of credit card trends based on 27 million anonymously sampled credit files shows that Americans continue to reduce card balances through economic hard times, possibly helped along by credit card reform that took effect Feb. 22.
The Federal Trade Commission today is urging caution for those with mounting credit card debt who seek companies that promise “pennies on the dollar” solutions. There is no guarantee that a debt settlement company can convince a credit card issuer to accept only a partial payment for the full, legitimate debt, the FTC said.
The Federal Deposit Insurance Corp. reported the failure of 7 more banks this week, bringing this year’s total to 37, representing a pace that will easily surpass last year’s total of 140 bank collapses. Through the end of March last year, 21 banks had failed.
Crippling loan losses propelled by a still peaking commercial real estate crisis prompted the FDIC to act against banks in Alabama, Georgia, Minnesota, Ohio and Utah.
Discover Financial Services sees a more positive outlook for 2010 with a stabilizing credit card delinquency rate, but it took a net loss of $104 million, or 22 cents a share, in the first quarter ended Feb. 28 – that includes a previously announced loan-loss reserve increase of $305 million. Its first quarter loss compares to a net income of $120 million for the first quarter of 2009. However, Discover card sales volume increased 5 percent from the prior year to $22 billion.
Bank of America, the nation’s top lender and second-largest credit card issuer, is combining its troubled Global Card Services with its deposits business under Susan Faulkner, who’s been with the bank for 25 years, BofA said today. Faulkner will now head the combined business of “Global Card Services and Deposits” following the resignation of Ric Struthers, who was a principal founder of MBNA and has marshaled Bank of America through the hardship of mounting credit losses.
Warren Buffett — legendary investor and world’s second-richest person — brought himself down a slight notch, financially and humility-wise, thanks to the failed idea of a credit card for customers of Geico, the insurance stalwart owned by his Berkshire Hathaway. Buffett admitted to Berkshire shareholders in his annual letter that his brainchild of a credit card branded to the third-largest U.S. car insurer, which Berkshire acquired in 1996, was a bad idea.
Credit card charge-offs – or loans deemed uncollectible and written off – edged mostly upward in January as reported by the major card issuers, although there is some optimism in the stabilizing of delinquency rates. Delinquencies – accounts running 30 days late – is generally a harbinger of bad loans to come. Most of the major card issuers either reported modest decreases or little change in the delinquency rates for January compared with December.
The beginning of a new year marks the arrival of the first post-holiday credit card statements and the realization for many that they may need to turn to debt relief companies for help. But consumers groups are warning credit card users that so-called debt consolidation plans could leave you with more debt – in the form of fees that can run as high as $4,000 for total debt of about $20,000 in the first half of a debt settlement agreement. In many debt settlement plans, consumers make monthly payments, usually into a special bank account, until “there is enough to make a lump-sum settlement offer to their creditors,” according to ConsumersUnion.org, the prominent non-profit organization which publishes Consumer Reports. The debt settlement companies, however, immediately start taking their fees out of this account.
Despite a mostly positive group of earnings reports this week from the biggest credit card-issuing companies, forecasts of possible profit trouble ahead as card reform laws take affect are rattling Wall Street. Particularly worrisome to investors – which sent shares of American Express and Capital One tumbling Friday – were an analyst’s forecast and comments from executives at American Express and Capital One. “The lack of consumer demand for credit, across our businesses, is striking,” said Capital One Chief Executive Richard Fairbank.
Bolstered by a plunge in expenses for futures losses, American Express reported net income of $716 million, or 60 cents a share, up from $240 million, or 21 cents a share, in the same quarter a year earlier. The earnings performance was buoyed by a significant cut in provisions for loan losses – $748 million, down 47 percent compared to $1.4 billion in the year-ago period. The decline reflected continued improvement in credit quality during the latter part of 2009.