Anyone with a credit card from a major bank has to read and understand this article. You may or may not have seen Ann Minch, the revolt of the Internet phenomenon YouTube debt on Fox News or Suze Orman's Financial popular CNBC television program, but what happened to the industry of credit cards in recent months is impressive. The company that tracks credit card chargeoffs ( "load off" is the act of making an accounting entry that indicates that a debt does not expected to pay), Fitch reports that from an already high overall figure of 7.4% in January, by August the rate was 11.52% and the number of cardholders credit of being charged off a month that the contract of the base of the holders of the credit card of almost 12% in one year. That means that every month the customer base for the credit card companies fell by almost 1% and assuming that chargeoffs reflects the average amount of debt on credit cards by cardholders the other, bad debts due to banks was by that amount (taking into account the cardholders to be charged out and may have reached their cards and higher than average balances).
Taking the figures month by month, and assuming that cardholders are not added new (probably a negligible figure in the economic climate), per thousand cardholders in early January would be only 880 in late December. Fitch expects chargeoff rates continue to increase during the first quarter of next year, so the cardholder base may be eroding faster than that. With the cash flow of defaulted cardholders drying up, banks are squeezing the world with a greater interest (called "ratejacking and fees) and when the compression leads some to default limit that we have to squeeze all those who remain the most difficult. Advanta Bank, once the largest emitter of 11 credit cards in the country had to close all of your letters to new charges in early June and its chargeoff rate reached 55.95% in a single month (June). Advanta is now probably less than 10% of cardholders carry that once had, since the rate increased worldwide over 30%.
That is happening to the other major banks, only a little slower. For example, the last three months chargeoff rates Bank of America were 12.5%, 13.8% and 14.54% – much worse than the average found by Fitch. In one quarter, they lost 3.5% of their cardholders. In fact, Bank of America lost 9.6 billion U.S. dollars in its banking business in the third quarter of 2009, representing 8.6 billion dollars that the gains from trade that may or may not be true, it probably does not reflect the actual cash flow, and in any case are the result of taking in large amounts risk. In other words, if not for the accounting tricks, the position of Bank of America would have been much, much worse than reported.
To cast salt in the wounds of the banks, debt buyers who relieve banks of their bad loans credit card has been pulling sharply. During good times banks could expect to seek new accounts unpaid five cents. As the recession deepened, the figure was considerably less than ten cents dollar. Now, with the opportunity to continue by default in its highest point of their difficulties in collecting the default media buyers scrap debt are themselves the dismissal of workers and not to make the purchase of fresh defaulted debt at any price.
Arrears require the addition of "level 3 "of capital to compensate, which is painful for banks-is a category that regulators scrutiny in assessing the health of a bank and banks work to minimize in order to avoid triggering additional regulatory oversight of daily operations. It is likely that some of the "too big to fail "banks require another bailout. Other banks will have to be assumed by the FDIC, which itself does not have nearly the funds it needs for settlements ordered all banks and not returning the money of their depositors insured.
Officials first suggested the FDIC for banks to assess the shortfall, but banks do not have the money. Then it was thought that with the banks three years prepaid premiums would solve the problem, but again the banks may not have not funded the plan. Apparently, the FDIC will require a bailout.
For consumers, this is the end of the line of credit. For less affected consumers coming back to life a lifestyle all in cash, while consumers who were heavy users of credit cards and balances made or will difficulties in paying them, or face an uncertain future consequences after default. Once the economy improves enough to junk debt buyers to access the funds to make purchases of debt in default, cessation of payments that consumers will have to deal with being in the collections, and many cases will face lawsuits and wage garnishment, liens, levies and other federal taxes because of the debt. Many consumers are unaware that legal and practical mechanisms at its disposal to prevent such consequences, even without repayment or bankruptcy
About the Author:
Attorney, Debt Expert and author of “Debt Hope: Down and Dirty Survival Strategies”