Payment Card News

Bankruptcy Losses

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Credit card losses, or charge-offs, topped 7% in October due to the surge in bankruptcy filings in the final weeks leading up to the full implementation of the bankruptcy reform laws. The worst is not over, since issuers treat bankruptcy related charge-offs differently. Last week, MBNA reported that its charge-offs were up sharply in November and it is bracing for another hit in December. MBNA charges-off bankrupt accounts by the end of the second calendar month following receipt of notification of the filing from the applicable court. Capital One’s charge-offs for October exploded to 7.93%. Since Cap One promptly charges-off bankrupt accounts, the figures for November were significantly below the prior month. Nevertheless, the accelerated rate of bankruptcy filings in September and October are biting the bank credit card industry hard. Credit card issuers should realize lower charge-off ratios in the second quarter of 2006 and beyond as the bankruptcy process becomes more onerous for American consumers. During July, August and September, there were a record 542,022 consumer and business bankruptcy filings, a 37% increase over one-year ago. It is expected that filings for the first two weeks of October may exceed 300,000. These filings will be reflected on card issuers’ books in December and January.

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|_2. 2005 MANAGED CHARGE-OFFS |
|_. Jan:| 6.18% |
|_. Feb:| 6.03% |
|_. Mar:| 5.98% |
|_. Apr:| 5.90% |
|_. May:| 6.16% |
|_. Jun:| 6.26% |
|_. Jul:| 5.99% |
|_. Aug:| 5.79% |
|_. Sep:| 6.23% |
|_. Oct:| 7.03% |
|_2. Source: CardWeb.com. Inc. |

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