In a dramatic shift of policy, card companies are now reaching out to debt-ridden cardholders. Faced with ever-growing losses and mounting credit card debts, card issuers have started changing their policies on clients with large balances and substantial card debts. For the first time in the credit industry’s history, card companies are giving cardholders the chance to open negotiations and help reduce debts.
The economic crunch has had a dramatic blow on the credit industry, resulting in billions of dollars in losses and a growing fear that more Americans will be unable to pay off their balances. This has led many card firms to rethink their debt restructuring policies. In fact, analysts say, card companies are actually initiating dialogue with cardholders in deep financial trouble. In the past, consumers had to plead with card firms to get lower interest rates and better terms.
According to financial experts, credit card companies are more than willing to negotiate with cardholders because they prefer collecting any amount rather than writing debts off as losses. With the current economic situation, they say, card firms cannot risk more lost revenues. Because of this, banks and card issuers have resorted to restructuring debts by lowering interest rates, waiving fees, or settling for lower debt payments.
Although credit industry representatives prefer not to openly discuss their companies’ changing restructuring policies, they have admitted that more firms are now accepting negotiated settlements with cardholders. The shift in attitude comes after record industry losses, driven by increasing delinquencies and charge-offs. In fact, the charge-off rate for credit cards this July was 10.52 percent. Financial analysts expect this figure to balloon to 12 percent by the middle of next year.
A recent study conducted by the Nilson Report, one of the foremost financial analysis firms in the U.S., showed a significant increase in the number of cardholders who have availed of debt restructuring deals. Some three million Americans saw their accounts modified to reduce balances. Experts say that the number can increase even more as the unemployment rate creeps nearer to the 10 percent mark. The delinquency rate has also shot up to 5.75 percent in July from a 4.5 percent the previous year.
Banks and card companies are also making it easier for cardholders to get hold of restructuring programs. In previous years, debt-ridden clients had to plead their case with supervisors. Now, card firms are authorizing company representatives to negotiate with their clients, experts say.