November 13, 2008

• News:  Scope of Credit Card Industry Threat.

  Some say the credit card industry is in trouble. The latest Federal Reserve figures that are available indicate that American consumer credit card debt has climbed to around $900 billion. Americans consumers are so weighed down that more and more of them, even those with good credit ratings, are becoming insolvent. They can't even qualify for a re-payment plan in order to pay off their credit card debts.

  The effect is that the number of credit card balances having to be written off as un-payable (otherwise known as ‘Credit card charge-off rates') have jumped to an alarming rate. From August of last year to August of this year, they have increased by 48 percent. This information was provided by Moody's Investors Service. This year those rates have risen to 6.8 percent.

  Credit card charge-off rates have always been with us and are expected. The bad news is that the rate is rising so fast. To hedge for this, issuing banks are required to maintain a fund for this purpose.

  Larger banks had recently set aside from around $1 billion and $3.5 billion to hedge third quarter losses because of these rising credit card loan defaults. As a result, the lenders profits have plummeted.

  Some of these larger credit card issuers are: American Express Co., Bank of America Corp., Capital One Financial Corp., Citigroup Inc., Discover Financial Services LLC, HSBC Holdings and JP Morgan Chase & Co.

  A large consortium has formed to deal with this alarming situation, comprised of many credit card industry components. Two large sub-groups have evolved from this process. One is called the Financial Services Roundtable. Its members include many financial institutions from diverse positions such as insurance companies, brokerage firms and large banks. There are over 100 members so far. Scott Talbott is senior vice president of this group. In a statement he said of the group that they would "continue to look for ways to help consumers in these extraordinary times."
  
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