Credit Card Companies Say "Let's Make a Deal!"

Brian Hicks

Updated June 17, 2009


monte hall



As my old pal Ian Cooper has been writing about for some time, credit card companies now have one foot on the edge of the abyss and the other on a banana peel.

In fact, according to reports this week credit card losses are continuing to accelerate with Capital One reporting that write-offs have reached 9.4% with no end in sight. Meanwhile, American Express Co., the largest U.S. credit-card company by purchases, wrote off 10 percent of it own loans.

That has morphed into an environment where banks are much less eager to hand out the plastic since the business isn’t exactly what it used to be.

As a result banks sent out only about 500 million credit card solicitations in the first quarter.  That is fewer than in any year since 2000 as overall available credit shrinks.

But wait, it gets even better than that.

Things have gotten so bad for these companies that they are also ready to play Monte Hall with these days with anyone that will ask. Apparently, you can cut your balance in half with a phone call.

From the New York Times by David Streitfeld entitled: Credit Bailout: Issuers Slashing Card Balances

“The banks were bailed out last fall, the automobile companies last winter. For Edward McClelland, a writer in Chicago, deliverance finally arrived a few days ago.

Mr. McClelland’s credit card company was calling yet again, wondering when it could expect the next installment on his delinquent account. He proposed paying half of his $5,486 balance and calling the matter even.

It’s a deal, the account representative immediately said, not even bothering to check with a supervisor.

As they confront unprecedented numbers of troubled customers, credit card companies are increasingly doing something they have historically scorned: settling delinquent accounts for substantially less than the amount owed.

The practice started last fall as the economy worsened. But in recent months, with unemployment topping 9 percent and more people having trouble paying their bills, experts say this approach has risen drastically.

They say many credit card issuers have revised internal guidelines to give front-line employees the power to cut deals with consumers. The workers do not even have to wait for customers to call and ask for a break.

“Now it’s the card company calling you and saying, ‘Let’s talk turkey,’ ” said David Robertson, publisher of the credit industry journal The Nilson Report.

Only a few creditors are willing to confirm the practice. Bank of America and American Express say they decide on a case-by-case basis whether to accept less than the full balance. Other card companies refuse to discuss the subject, but their trade group, the American Bankers Association, acknowledges that settlements are becoming more common.

Revolving credit, a close approximation of credit card debt, totaled $939.6 billion in March. The Federal Reserve reported that 6.5 percent of credit card debt was at least 30 days past due in the first quarter, the highest percentage since it began tracking the number in 1991. The amount being written off was also at peak levels.

After a balance has been delinquent for six months, regulations require the card company to reduce the value of the debt on its books to zero. If a borrower has not paid by this point, chances are he never will.

“The creditors would rather have a piece of something now instead of absolutely nothing down the road,” said Adam K. Levin, the founder of the consumer education Web site”

I guess a bird in the hand really is worth two in the bush…

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