Credit Card Companies Get the Squeeze

[Jan 5, 2009.]

 

Economic downturns or dare it be a recession have been a feeding frenzy for credit card companies.  They see increases in credit usage and are able to increase interest rates to sky high levels.

This time may be different, credit card companies are starting to feel the squeeze.  These companies help fuel the fire of heavy consumer debt in the past, profiting quite nicely in the process.  Reality is beginning to set in as Americans feel the pressure of the sluggish economy and the credit card companies realize that payments are not being made and that more drastic measure are necessary.

Credit lenders and their collection companies are rushing to round up what money they can before things get worse, even if that means forgiving part of some borrowers’ debts. Increasingly, they are stretching out payments and accepting dimes, if not pennies, on the dollar as payment in full.

“You can’t squeeze blood out of a turnip,” said Don Siler, the chief marketing officer at MRS Associates, a big collection company that works with seven of the 10 largest credit card companies. “The big settlements just aren’t there anymore.”

Debt consolidation loans and mortgages have gone by the way side with the current credit crisis and there doesn’t seem to be any real signs of things improving.

Credit companies are expecting a wave of defaults in early 2009 and are simply protecting themselves from potential disaster.  Cutting credit limits, lowering fees and other measures are being taken to improve the financial situation of these credit card companies.

Bank of America, for instance, says it has waived late fees, lowered interest charges and, in some cases, reduced loan balances for more than 700,000 credit card holders in 2008.

Credit card lenders expect to write off an unprecedented $395 billion of soured loans over the next five years, according to projections from The Nilson Report, an industry newsletter. That compares with a total of about $275 billion in the last five years.

Source: New York Times

 

About Author:

Brent Lane is a Mortgage Consultant in Roseville, California. He helps homeowners in California with their mortgage financing and writes on his BLOG at www.thelanegroup.blogspot.com