Advanta Credit Cards Cannot Be Used After Next Saturday

Advanta Corp. announced it is freezing almost a million accounts as a consequence of an unprecedented 20.15 percent default rate in April.

The Philadelphia Enquirer has the story in “Advanta moves up card-freeze date“.

This article begs the question, what does a credit card company do when the default rate climbs so high that being in the business costs more money than it takes to stay in business? How many borrowers of the 79.85 percent who have not defaulted will default now that their credit card company offers no services? In this case, the article notes, “The company hopes customers will pay off their balances, but it is not clear what business Advanta will have after that.”

Are Banks Helping Cardholders?

I watched NBC’s Nightly News tonight and wasn’t surprised to see the segment about the gentleman whose Bank of America credit card account’s interest rate was nearly doubled without cause. The man reportedly hasn’t made a late payment in more than a decade and wasn’t over his limit.

Bank of America and other banks have been reportedly increased credit card interest rates and tacked on or increased fees at will. This is to be expected of an industry that faces little regulation and is given permission by the State of Delaware to do as it wishes with interest rates.

On the other hand, reports indicate banks are trying to be helpful to credit card holders who are strapped for cash in this economic downturn.

In fact, a coalition of banks is running TV, web and print ads inviting credit-card holders who struggle with their payments to visit HelpWithMyCredit.org. There’s even an 800 number: call 1-866-941-1030. The coalition includes Bank of America, Citigroup, MasterCard, Visa, Capital One and Discover. (Chase and American Express are not participating because they wish to work directly with card holders.)

So which is true? Are banks being helpful or are they gouging account holders?

Both are partly true in a “partly cloudy” sort of way.

“Banks roll out efforts to aid strapped credit-card holders” MarketWatch’s take on the current consumer banking situation. The article states, “credit-aid effort (by the banks) doesn’t provide consumers the whole story.” It’s a must-read article if you’re in a credit card jam.

In fact, the helpful part appears to be self-serving. Banks know they’ll lose more money from bankruptcies than from offering ways for card holders to work out a payment plan.

It reminds me again of the famous, TANSTAAFL, from Economics 101: There ain’t no such thing as a free lunch!

If you want a great economic mind’s take on this banking initiative, check out Mike “Mish” Shedlock’s article, “Beware of ‘HelpWithMyCredit’”

What has stirred this sudden desire of banks to help card holders? I imagine it’s the current activity in both houses of Congress to increase regulation of a banking industry run amok with fees and outrageous interest rates.

Homeland Security vs. Credit Card Companies

The United States House of Representative’s Committee on Homeland Security is looking at something other than terrorists. This past week they put their sights on credit card companies like MasterCard and Visa. (That isn’t to imply that the credit card companies are acting as terrorists … though some card holders may feel like they’ve been terrorized by credit card contracts that allow for self-modification.)

The credit card companies created and enforce the Payment Card Industry (PCI) security standards that apparently failed to prevent cybercriminals from accessing the information of millions of consumer’s credit card accounts in the Hannaford and Heartland cyber attacks.

According to “Visa, MasterCard In Security Hot Seat” on Forbes.com, Rep. Bennie Thompson, chairman of the Homeland Security Committee, suggested the credit card company developed the PCI standards, not to prevent cyberattacks, but to shift the blame onto retailers.

Get Paid to Close a Credit Card Account

Yahoo Finance has the news, “AmEx paying card holders to close their accounts“.

What an odd thing. Certainly, a sign of our times. American Express Co is apparently offering a limited number of card holders $300 if they will pay off their balances and then close their American Express accounts.

So, if you’ve got an AmEx card you’re not using and don’t mind trading it in for $300.00, you might call the 800 number on the back and see if they’ll buy your account.

FRB’s Bank Card and Mortgage Delinquencies Map

This is a cool tool!

The Federal Reserve Bank of New York offers dynamic maps of bank card and mortgage delinquencies in the United States. It’s one of the coolest tools I’ve seen in a while.

The Credit Condition Map is actually fun to play with. The irony is that while you play with it, you’ll see some sad stats. The map offers two types of delinquency data: bank card delinquency rate of 60 or more days and mortgage delinquency rates of 90 or more days.

Credit Card Delinquencies Hit Record High

USA TODAY reports “More consumers fall behind on paying credit cards“.

As consumers lose access to home equity loans and lines of credit and as credit card companies change terms, consumers are being squeezed.

As a consequence of the credit crisis, Fitch Ratings expects credit card charge-offs to approach 9% in the second half of 2009. In other words, nearly 1 out of 10 credit accounts will be charged-off because the account holder cannot make payments.

Here’s how the downward spiral for credit card companies may play out. Charge-offs will increase as job losses and tight credit impact household wealth. In their efforts to compensate for the charge-offs, credit card companies will increase fees and raise rates. This will increase the number of card holders who cannot afford their payments.

And somewhere in all of this, what will the impact be of all those who can make their payments, but grow so disgusted with the lack of banking oversight, the bail out of poorly managed financial firms, and the absence of appropriate consequences for those who are scoff laws. At some point, I imagine only those with strong personal integrity or a sense of ethics will make payments to companies that seem to be extorting them by increasing rates and fees.

It’s not a pretty picture.

House of Cards

Don’t miss “House of Cards: Why Analysts Fear $1 Trillion Credit Card Market Could Be Next Crash” by Martha C. White in the 1/21/09 issue of The Washington Independent.

Credit Card Industry Not Looking Good in 2009

You’ve seen the Capital One commercials in which dumb thugs dressed in chain mail and carrying broad axes do random damage. The question asked is, “What’s in your wallet?”.

Before the current economic crisis, those commercials were (at best) cute. But even in good days, the commercials seemed to hint at a mixed message. Now, the Viking-like thugs have taken on an ominous tone.

Without questions, credit card companies are hurting. Perhaps it’s the pendulum of justice that swings through the universe. Did they put too many cards in too many card holder’s wallets. Or perhaps the credit card corporations have offered too much credit to the uncredit-worthy at huge interest rates for so long that it’s coming back to bite them. Battle axes and swords cut on both sides.

In, “Credit card industry faces tough 2009, Capital One loss suggests challenges for rivals like American Express“, MarketWatch is reporting on the difficulties the credit card industry faces in 2009. It’s not a pretty picture.

In “What’s In Your Wallet … Deadbeat“, Barron’s reports net charge-offs increased to 7.71% in December.

2009 is not setting up to look good for the credit card industry.