SOURCE: Think Debt Relief

Think Debt Relief

March 05, 2009 10:30 ET

Credit Card Companies to Lose Nearly $100 Billion in Write-Offs

PHOENIX, AZ--(Marketwire - March 5, 2009) - Rising credit card interest rates, an economy in recession, and consumers' limited access to credit are making it more difficult for debt-ridden consumers to keep up with their monthly credit card payments. As more and more consumers seek credit card debt relief from debt-help companies like Think Debt Relief, consumer delinquencies could lead to a spike in credit card defaults that some experts say could worsen the problems in the credit markets.

Gregory Larkin, a senior analyst at research firm Innovest Strategic Value Advisors, tells BusinessWeek that credit card defaults may be "the next meltdown." Innovest estimates that credit card issuers took a $41 billion hit from defaulted debt in 2008 and that they'll face a whopping $96 billion loss in 2009.

For the third quarter of 2008 alone, American Express was forced to increase its projected credit card losses to $1.5 billion from $810 million. Bank of America, the nation's second-largest credit card issuer behind JPMorgan Chase, revealed that it would write off roughly $3 billion of its $184 billion credit card portfolio in the third quarter, a 50-percent increase from a year ago.

"The good news for us is that we have the strength to get through this, but the bad news is that the earnings recovery does take a while," says Bank of America spokesman Bob Stickler. "We are prudently adjusting our underwriting standards to adapt to changing economic conditions."

Yet banks and credit card companies may be contributing to their own problems by raising interest rates, suggests BusinessWeek, pushing already-struggling consumers even further toward default or debt relief options like credit card debt settlement and bankruptcy. A survey of major credit card issuers by consumer advocacy group Consumer Action found that 37 percent of companies have raised their interest rates across the board, even for consumers with relatively strong credit histories.

In an effort to protect consumers from interest-rate hikes and help prevent defaults, regulators and politicians are introducing legislation aimed at reforming the credit card industry by abolishing certain fees, revising billing practices, and limiting when credit card issuers could increase their interest rates.

About Think Debt Relief

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