The Learning Curve

New tricks for an old dog.

Credit card debt crisis

Credit card crisis

F.D.I.C. Failed bank list

March, 2009
CNN: Banks’ future woes in one word: plastic

February, 2009

Arianna Huffington: The Credit Card Debt Crisis: The Next Economic Domino

Credit Crisis VisualizedCredit Matters Blog – it’s about sub-prime mortgage lending, but the general idea is also applicable to credit card lending practices.

” . . . . Christine Gasparac, a spokeswoman for California Atty. Gen. Jerry Brown, said the problem was one of federal preemption. She said the National Bank Act of 1863 generally prevented states from telling banks how to conduct their business . . . The justices issued a doozy in 1978 when they ruled in the case of Marquette National Bank vs. First of Omaha Corp. that a bank can charge all customers, no matter where they’re located, whatever rate is allowed by the bank’s home state . . . With Marquette in place, it’s clearly futile for California to try to practice tough love when it comes to national banks’ credit card rates. They’ll just keep moving their card operations to states that think sky-high rates are perfectly fine. . . . “

L.A. Times: David Lazarus February 18, 2009 – Loophole lets credit card rates rise

“By ratcheting up the pressure on customers, major banks — some of which have received billions of dollars in bailout cash from taxpayers — are making it likely that a growing percentage will be forced to either default on their obligations or seek bankruptcy protection.

“Last week, letters arrived at the homes of Citibank cardholders throughout California warning that their rates could rise to 29.99% if they miss a single payment . . . .”

L.A. Times: David Lazarus February 15, 2009 – Don’t miss a credit card payment, or the APR could soar.

January, 2009

Washington Post – By Switching Their Charters, Banks Skirt Supervision – Binyamin Appelbaum

“At least 30 banks since 2000 have escaped federal regulatory action by walking away from their federal regulators and moving under state supervision, taking advantage of a long-standing system that allows banks to choose between federal and state oversight, according to a Washington Post review of government records. . . .”

CBS News – Working Triage In The Credit Crisis

“The problem started with mortgages. But now, delinquencies on auto loans and home equity loans have reached record levels. And a new study says its spreading to credit cards.

“Basically, people are falling further behind?” Mason asked.

“On their credit card, yes. And they’re defaulting more. And they’re paying less,” said Michael Dean of Fitch Ratings.

“Since July, the study found, balances that are more than 60 days past due have risen more than 34 percent. And, 5 percent of all credit card borrowers are now more than two months behind.

At the credit counseling center in Dallas, the typical client, who a year ago had $21,000 in debt, is now coming in with $30,000 in debt.” asked.

December, 2008

“The only reason credit card lenders are able to change the terms of their lending agreements midstream—often in no way connected to negative behavior on the part of the borrower—is because the credit card market lacks any sensible regulation providing for basic consumer protection,” said Draut.  “Banks are just trying to balance their losses from shoddy subprime lending on the backs of their credit card customers.  American families need these protections now, and we call on Congress to move swiftly to codify the provisions of the rule and implement them as soon as reasonably possible.”

Demos – Bank Regulators Move to Rein In Unfair Credit Card Lending Practices


“Credit cards are shaping up to be the next chapter in the financial meltdown, promising to stymie consumer spending, drag on the economy and force a whole new wave of financial difficulty on Americans.”

— Forbes – How To Survive The Coming Credit Card Crisis


“It is surprising, but it is still legal. You can be a customer who never paid a bill late, is using 40% of your credit limit, and did everything right, but see your interest rate sky-rocket overnight. I just watched a video yesterday about a guy who did just that and had his rate go from 7% to 30% overnight – for no apparent reason. And he can do nothing but suck it up and take it.”

— Christian Personal Finance – Surviving the inevitable Credit Card crisis


But Making matters worse ~ just as with mortgage debt, credit card debt has been put into pools that are then resold to investment houses, other banks and institutional investors. About 45 percent of the nation’s $900-plus billion in credit card debt has been packaged into these pools, and so many companies, not just a few, are at risk of being forced out of business by credit card debt write-offs.

Credit Card Crisis Is Here / Derivatives Next by Allen L Roland

November, 2008

– there were $21 billion in bad credit card loans in the first half of 2008, and the credit card industry stands to lose at least another $55 billion over the next year and a half
– Capital One has aggressively shut down inactive accounts and reduced customer credit lines by 4.5 percent in the second quarter from the previous period
– mail offers to new and existing customers are on pace to drop below 8.4 billion pieces, the lowest level since 2004
– the net charge-off rate on credit-card defaults could go as high as 10% in 2009 – double the average of 5% over the past 10 years, reaching $18.6 billion in the first quarter and $96 billion by the end of next year
– Citigroup will impose higher interest rates on some of its 54 million cardholder accounts, while its credit-card division lost $902 million in the third quarter

Bad Credit Advisor – Credit card crisis – few facts on the worst credit crunch yet


” . . . . Right now the US public debt is well over $10 trillion.   That is mind boggling.  But credit card debt alone, owed by consumers is over $900 billion (up from only about $240 billion in 2002).  Think about that — during the property bubble we not only achieved the lowest equity in property ownership in history, but while doing that have gone into immense credit card debt.  .  . .”

World in Motion – The Coming Credit Card Crisis


“The net charge-off rate on credit-card defaults could skyrocket to 10% in 2009 — double the average of 5% over the past 10 years — reaching $18.6 billion in the first quarter and $96 billion by the end of next year, predicts an October report from Innovest Strategic Value Advisors, an investment-research firm. “A 10% [charge-off] rate would be unprecedented,” says Laura Nishikawa, an Innovest analyst.”

— Time Magazine – With Defaults Rising, Is a Credit-Card Crisis Looming?


— American Public Media – Marketplace – Credit card crisis on the horizon

Digital Journal – Opinion: Big lenders propose debt forgiveness in U.S. credit card crisis, by Paul Wallis


” . . . . the credit card industry is typically resilient during our economic slowdown, thanks to pricing flexibility. And the thinking was, that as the economy sours, and consumers become late on payments, credit companies can boost earnings through late fees and higher interest rates. But that’s no longer the case.

“That’s because consumers are tapped dry. Defaults are growing. Charge-offs have been pushed well beyond expectations. And losses are far outpacing what companies were hoping to account for with extra card fees and higher interest rates. . . . “

Daily Markets – The Credit Card Crisis: American Express Suffering, by Ian Cooper

October, 2008

“.  .  .  .  Making matters worse, the subprime threat is also greater in credit-card land. Risky borrowers with low credit scores account for roughly 30% of outstanding credit-card debt, compared with 11% of mortgage debt. More than 45% of Washington Mutual’s credit-card portfolio is subprime, according to Innovest. That could become a headache for JPMorgan Chase, which agreed on Sept. 25 to buy the troubled thrift’s credit-card business and other assets for $1.9 billion.  . . . “

Businessweek: The Next Meltdown: Credit-Card Debt by Jessica Silver-Greenberg


“Just as Washington hands over the biggest bailout in history to Wall Street in what is ostensibly a way to free up credit markets, banks are looking for ways to collect more money from debt-submerged consumers. Along with adding climbing rates, inconspicuous charges, and adjusting credit-card terms, credit card companies like American Express are now penalizing customers based on where they shop and who holds their mortgage.”

The Minnesota Independent – Credit card users beware: How the crisis will affect you and your bills by Molly Priesmeyer


“Lenders wrote off an estimated $21 billion in bad credit card loans in the first half of 2008 as more borrowers defaulted on their payments. With companies laying off tens of thousands of workers, the industry stands to lose at least another $55 billion over the next year and a half, analysts say. Currently, the total losses amount to 5.5 percent of credit card debt outstanding, and could surpass the 7.9 percent level reached after the technology bubble burst in 2001.”

— New York Times – Consumers Feel the Next Crisis: It’s Credit Cards


“You can expect to see more serious consequences for missing a payment. Some lenders are lowering credit limits or hiking up interest rates after just one missed payment. When credit scoring companies, such as Fair Isaac Corp. (FICO) see these negative shifts in your credit, your credit score is probably going to go down. Be aware that some credit cards are decreasing credit limits or increasing interest rates even if you’re not at fault. Be sure to monitor your credit card statement. Lenders are allowed to increase your interest rate without even telling you.”

— Forbes – Dealing With The Next Crisis: Credit Cards


“As with mortgages, banks bundle groups of so-called credit-card receivables, essentially consumers’ outstanding balances, and sell them to big investors such as hedge funds and pension funds. Big issuers offload roughly 70% of their credit-card debt.”

BusinessWeek – The Next Meltdown: Credit-Card Debt


— Ike Eze – Stay Away From Me, Credit Card Crisis

June, 2008

“Right now what we’re seeing is the US consumer losing their disposable income as they have to spend more and more on necessities because of higher prices for gas and food,” says Ron Ianieri, a market strategist and co-founder of the Options University investor education center. “Normally when you have a certain budget and you can’t keep up with the budget one of the easy steps is to extend that budget using credit.”

MSNBC – Credit-Card Use Is Surging, Risking Another Debt Crisis

Los Angeles City Beat: A House of Cards, by Danny Schechter

Allen L Roland’s Radio Weblog – Hugh credit card crisis next for America

April, 2008

“The US may be moving into the next phase of the mortgage crisis. It’s called the credit card crisis. Which means there may be more defaults, lower spending limits, and perhaps higher interest rates for the 75 percent of Americans who have credit cards.”

— ABC local KGO-TV San Francisco, CA: The next phase: credit card crisis

November, 2007

Borrowing to Make Ends Meet- The Rapid Growth of Credit Card Debt in America


“The doomsday scenario would play out something like this: Just like CDOs and other asset-backed securities, credit card debt is sliced, diced, and sold off again as packages of securities. Rising delinquencies would hurt not only the banks involved but the securities backed by the credit card receivables. Those securities would decline in value as consumers defaulted, leading to bank losses as well as portfolio losses in the hedge funds, institutions, and pensions that own the securities. If the damage is widespread enough, it could wreak havoc on the economy much as the subprime crisis has done.”

— Yahoo! Finance – The $915 Billion Bomb in Consumers’ Wallets

September, 2007

In 1970, 51% of Americans had a credit card, compared with 93% in the fall of 2007. At that time the average cardholder had 7 cards, and the average U.S. household owed $9,659 on its credit cards. A year ago Americans owed $850 billion in credit card debt in total. 60% of Americans have been in credit card debt for more than a year. Only one-third of credit card holders pay off the balance at the end of each month.

— Mother Jones September/October 2007 Issue: House of Cards by Dave Gilson

September, 2005

“Causes for Concern – Today’s students face a crisis. A 2004 Nellie Mae study shows that 76% of all undergraduate students have at least one credit card and carry an average balance of $2,169. They must learn to manage their debt. But most young adults are not wealthy enough to avoid liabilities. They must borrow. “

Young Money – College Student Credit Card Crisis

May, 2005

“Individual loans mushroomed, as did the number of credit cards lining consumers’ wallets. The trend proved disastrous. Soaring household debt and default rates drove the economy into recession and led to billions of dollars worth of bailouts for credit companies. Before the crisis, South Koreans had little experience managing debt, to say nothing of high-interest-rate credit card debt . . .”

“. . . Credit card companies over-leveraged to an extent that investors and regulators did not realize. Many of the loans were securitized through asset-backed securities. Most of the debt was short-term and had to be rolled over, meaning that the assets were not fully taken off balance sheets. And then, the government saved these gamblers.”

International Herald Tribune – South Korean credit crisis offers a lesson . . . by William Pesek Jr.

Federal Reserve Board and consumer credit

December, 2004
Federal Reserve Bank of San Francisco – Economic Research and Data – After the Asian Financial Crisis: Can Rapid Credit Expansion Sustain Growth?

” . . . . have sought to generate economic recovery by expanding domestic credit. The rapid credit expansion in both countries has created concerns about the extent to which their economies can channel these funds efficiently and sustain economic growth. In particular, if banks are unable to supervise the allocation of resources effectively, there is a risk of widespread bankruptcies and a financial system crisis. Previous experience shows that these Asian economies indeed may be at risk of a credit boom and bust cycle.”

Sen. Christopher Dodd’s statement on new Federal Reserve credit card rules.

Dec 18, 2008 – –

“Confusing, misleading and in some cases predatory practices have become the standard operating procedure for many in the credit card industry.  As a result, American consumers – the bread and butter of our economy – are increasingly finding themselves buried under an avalanche of debt.  These rules will crack down on some of these practices, and I applaud the Fed for taking action.  But more must be done to protect consumers, which is why I plan to re-introduce the Credit Card Accountability, Responsibility and Disclosure Act when the Congress reconvenes.  This comprehensive legislation bans a number of practices that the Fed rules do not, including ‘any time any reason’ rate increases, universal default, excessive and unreasonable fees, and marketing targeted to young consumers.  I hope my colleagues will support this legislation so that we can put an end to these unacceptable practices once and for all.”

Credit Cardholders’ Bill of Rights Act of 2008 – H.R.5244

A bill in the House of Representatives, 110th Congress (2007-2008) to amend the Truth in Lending Act to establish fair and transparent practices relating to the extension of credit under an open end consumer credit plan, and for other purposes.
MasterCard Comments on Credit Cardholders’ Bill of Rights Act
Wall Street Journal – The Wallet – Crunching the Credit Cardholders’ Bill of Rights

September, 2008

President Bush’s statement of opposition to HR 5244 – Credit Cardholders’ Bill of Rights Act

“The Administration opposes H.R. 5244, particularly section 2 of the bill, because it would broadly constrain the ability of financial institutions to price risk, likely resulting in less access to credit and in higher interest rates for consumers. For the credit market to operate efficiently, creditors must have the flexibility to react to changes in customer risk and market conditions. Section 2 would restrict when lenders may change terms of the credit agreement, significantly constraining the ability of financial institutions to adapt to changing credit risks and market conditions.”

Growing the credit card market: December, 1998

Direct Marketing magazine – Credit Card Crisis

Interesting read about how credit card companies were planning to grow an already saturated market back in 1998. The question subjected to the rigors of management level strategic thinking was this: What to do when all the credit-worthy of the population already have credit cards? If it had been addressed as a question of logic, the answer wold have been both simple and obvious. If the credit-worthy are not adopting your credit card, the only alternative is to give credit to the non-creditworthy of the population. However, it turned out to be not a question of logic but rather a question of marketing.  The answer was neither clear nor obvious.

“Credit lines are under $2,500 and APRs are high because of the higher risks. Rates range from 14.9% to 26.9%. Prospects who do not qualify for unsecured credit will be offered a secured credit card and will be traded up to an unsecured card as soon as possible.”

PBS: Eight things a credit card user should know. 12 Ways to Get out of Credit Card Debt
Bad credit advisor


Written by Tom Fox

01/07/2009 at 4:15 pm

Posted in Credit card debt

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