Bankruptcy Filings Cause 'Big Credit' to Take a Hit
Some of the following I am paraphrasing from NACBA discussions & I would like to thank Linda Hamm for her contributions:
Reports have been pointing to the voluminous number of bankruptcy filings in the 7-10 days leading up to the law change. I wrote about this in earlier posts, see "New Bankruptcy Law is Not Cause for PANIC" - where we quoted trustees as saying, "Four or five months' worth of cases were filed within a week" -- also see "Bankruptcy Filings Deluge Courts"
When the dust settles, we're looking at upwards of 500,000 bankruptcies filed during the last week before BARF, and with an estimated $20,000 of credit card debt per filing (this could be higher), then we're talking about credit card companies that are going to be writing off $10,000,000,000 in debt.
Now before you start feeling sorry for Big Credit keep in mind that they're making money on the credit card transactions, too. They charge 2-3% of each transaction as an additional fee to the merchant who takes the card. "Over 1 billion gallons of gas are sold in the United States every single day (the base figure is 7 billion gallons sold worldwide daily - (National Association for Convenience Stores), and approximately 50% of that is put on a credit card. At $2.75 per gallon, that's $41,250,000 daily, just on gas sales."
Yes, they're taking some upfront losses with the flood of discharges - and I'd be willing to bet that they had hoped for a slight sprinkle in filings instead of a monsoon. Despite their huge loss, they still manage to make more money than they know what to do with. And they're looking at this quarters' losses as an investment in the years to come where a greater % of consumers are stuck with the debt - regardless of the consumer's plight: See Senator Durbin's comments at: "Sen. Durbin addresses bankruptcy bill on the Senate floor". Especially, "What it means is fewer people who walk into bankruptcy court will be able to walk out with a clean slate. Many people walking in, crushed by debt, will find themselves walking out still carrying most of that debt."
I for one am not going to be sending any hallmark cards to Big Credit.
