There is nearly a trillion dollars worth of poor credit history card debt in this country right now–$939 million according to most recent figures-and nearly 7% of that amount is more than 30 days late. Since the delinquency rate began being measured and recorded in 1991, this is the first time that the 6% barrier has been exceeded. With unemployment at just under 10% and rising steadily, it’s likely that delinquency will continue to increase.
As a result of consumers having a harder time paying, poor credit history card companies are more willing than ever to negotiate with cardholders and settle on a lesser amount than what is actually owed. To card companies, collecting on some of a delinquent balance is better than the alternative of collecting nothing at all, and that is becoming a real possibility with some customer accounts as cardholders struggle through challenging economic conditions.
Most issuers of poor credit history cards are not eager to share the details of the programs that they are putting in place to negotiate with cardholders. Only Bank Of America and American Express admit to increase settlements on negotiated balances, and they state that the settlements are approved on a case by case basis. According to the American Banker’s Group, it is becoming a much more common practice to see poor credit history card balances settled for significantly less. Many cardholders are reporting being offered settlement amounts without bank representatives even having to check with a supervisor.
poor credit history card issuers are required to write delinquent debt off of their books once it is six months past due, and with the billions of dollars slipping into delinquent status, collecting something on outstanding debt is vital to the survival of poor credit history card issuers. Companies used to be much tougher on borrowers who weren’t making timely payments, sending accounts to collecting, garnishing wages, and putting liens on assets to collect on outstanding amounts. Customers in today’s economy have much less to lose than in the past, and the threats that worked so well a few years ago aren’t as effective today.
Card issuers are quick to point out that a settlement can have a significant impact on a customer’s poor credit history score, so a settlement is not an easy way out. But it is an effective solution that is positive for both cardholders and issuers at this point, and one that will probably become even more common, especially since new laws will make it much more difficult for poor credit history card issuers to increase interest rates and fees for delinquent customers.
