Capital One is one of the biggest credit card companies in the United States. During the economic downturn and the resulting credit card crisis, it also became one of the heaviest hit credit card companies in the country.Along with several other major credit card companies, Capital One was on the verge of bankruptcy and was saved through the intervention of the government which provided it and other credit card companies with large loans.
Although Capital One has recovered somewhat from its near brush with bankruptcy, it hasn't yet fully recovered and still has a long way to go.
Like most credit card companies these days, Capital One is seeing an alarming trend for credit card usage among credit card holders. Credit card holders are slowly keeping off credit card purchases. In general, credit card holders are becoming much more aware of the dangers of unchecked credit card spending. Many are beginning to minimize their credit card usage and using cash or other alternative plastic card solutions. The result has been a slow down in earnings for Capital One.
Though the slowdown is not unique to Capital One, the company is one of the credit card companies that have been hurt by the slowdown in credit card purchases. Capital One has traditionally made a lot of profits off of credit card holders who are not very good with keeping up with their debt payments.
Basically, credit card holders who do not fully pay off their monthly balances and who pay minimally get charged with penalty fees and interest rate increases. Obviously, this generates huge profits for Capital One while exposing them to minimal risk. However, in a situation like this, the worst case scenario for Capital One, or for any credit card company for that matter, would be to have numerous clients who do not pay their credit cards until their debts become charge-offs which translate to losses. This is essentially what happened when the economic crisis hit and large numbers of credit card holders began defaulting on their payments.
Another additional worry for Capital One to face is the credit card bill. The bill is going to seriously dampen the credit card company's flexibility which will result in profit losses. To counter this future effect, Capital One is pre-emptively raising their interest rates and fees in order to keep up. Unfortunately, the income that Capital One is seeing from this tactic is mostly offset by the losses that the company is seeing from reduced credit card transactions.