A recent concern within the credit card industry is the growing number of “charge-offs” that are occurring at small banks. A charge-off is where a creditor declares that an amount of debt is not likely to be collected. This occurs when a consumer becomes delinquent on debt, which is usually six months of no payment. Although overall credit card loss is nowhere near the level it was during the height of the latest recession, which saw small and big banks alike searching for higher yields and a more affluent customer base, the trend has been increasing over the past two years.
The average charge off-rate is currently at an eight-year high of 3.5 percent, a number that is worrisome to many lending institutions. Small banks, banks that have less than 10.4 billion dollars in total assets, have seen the biggest surge in credit card delinquencies. What may explain this surge is the fact that small banks have tried to employ strategies to fight back against the bigger banks, which splurged on their customers with cash rewards and points that were easily redeemable for vacations during the wake of the recession. To compete, smaller banks were forced to loosen credit score requirements, a move that is now backfiring as consumers are once again taking on more debt than they can afford.
One such small bank that has seen a rise in credit card charge-offs is Comenity Capital Bank, which has around 8.5 billion in assets and issues credit cards mostly to mall-based retailers. Comenity’s credit card charge-off rate this past quarter was around 5.96 percent, up from 5 percent from the previous year.
Not surprisingly, some small banks have decided to get out of the credit-card business altogether. Nationwide Bank stopped marketing credit cards in 2016 after concluding that it couldn’t compete against the bigger banks with the increased charge-offs they were incurring.
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If you are like many struggling to pay off credit card debt or are delinquent on your credit cards, don’t hesitate to contact one of our experienced debt attorneys at McCarthy Law to get more information about the relief that we can provide you.