Christian Weller, an economist and senior fellow at the liberal think tank, the Center for American Progress, sums up the state of credit card companies in a pithy post at Credit Slips today.
Default rates are surging: "In the fourth quarter of 2008" writes Weller, "credit card companies charged off -- declared as uncollectible -- a whopping 6.3 percent of their debt."
(And the numbers are continuing to get worse -- Bloomberg reports that the average "charge-off rate" in January 2009 was 7.1 percent.)
Weller observes that all this is coming after the credit card industry's successful effort to solve their "deadbeat" problem by getting the laws changed to make it harder for borrowers to declare bankruptcy. And then he delivers a stinging conclusion.
The worst part of this crisis is that it was foreseeable. For decades, credit card companies have layered fees and excessive interest rates on their borrowers. Instead of addressing the consequences of high, complex, poorly understood credit card costs, though, the high default rates were simply explained away by declaring defaulting borrowers as deadbeats. Now that there won't be another round of bankruptcy reform that could be sold as salvation, credit card lenders will have to come to terms with the fact that their practices were actually detrimental to their own financial health.
But don't worry too much about your own outstanding balance! Bankruptcy may not be as easy an option as it once was, but the credit card companies are still looking out for us: They've created a new Web site for beleaguered borrowers: helpwithmycredit.org.
You won't find any information on how to declare bankruptcy at helpwithmycredit.org, but you can have loads of fun looking up the phone numbers of accredited credit counseling organizations. One wonders, though, whether the sponsors should take a taste of their own medicine.
Companies participating in Help With My Credit include credit card issuers Bank of America, Capital One, Citi and Discover Card, as well as the payments networks MasterCard and Visa.
Didn't I hear somewhere that some of those companies were having credit problems of their own? Maybe they need a Web site.