Troubles Are Deepening At Target's Credit-Card Unit

NEW YORK -(Dow Jones)- New data indicate that delinquencies for Target Inc.'s (TGT) securitized credit-card portfolio are rising at historic rates and the trend is accelerating.

The sharp deterioration raises questions about a stepped-up role by partner JPMorgan Chase & Co. (JPM).

Target says it can hold out at least through next month before the banking giant would begin exercising its right to step in and mandate underwriting and risk-management changes.

Delinquencies for Target's $8.71 billion securitized credit-card portfolio in October jumped to a rate of 8.1%, or by 230 basis points, to $709 million, on a year-over-year basis. This is the third month in a row that year-over-year delinquencies have risen at such a historically fevered pitch, Credit Suisse said.

Around 20%, or 47 basis points, of the overall 230 basis-point rise came just last month.

The 8.1% total is the portfolio's highest monthly level since at least 2001, industry data show. It came as net charge-offs for Target's portfolio topped 10% for a second consecutive month, coming in at 10.2%. Charge-offs rose to 10.1% in September.

And problems have been getting worse.

Aggregate collections fell to an 11% rate of average receivables in October, down 281 basis points from a year ago.

Roughly $333 million, or 4%, of average receivables are four or more payments behind.

A little over $150 million, or 1.73%, of average receivables had experienced three missed payments at October's end.

Target also reported that customers with two missed payments account for $225 million, or 2.59%, of average receivables.

The figures are contained in a regulatory filing by Target on Thursday and give a fuller picture of how the company's credit-card operations are boring a major hole into the company's profitability.

Target on Monday said third-quarter net income dropped 24% on reduced profit from the credit-card division. Bad-debt expense more than doubled to $314 million from a year earlier as more customers defaulted on credit-card bills.

The deteriorating economy is trouncing the credit-card division's performance and raising questions about whether JPMorgan Chase may take a greater hand in the operation.

Target in May sold 47% of its stake in the credit-card unit to JPMorgan Chase for $3.5 billion. Under terms of the sale, the portfolio's performance must remain "sufficiently strong."

If "substantial unanticipated portfolio deterioration" occurs, JPMorgan Chase would gain the right to direct Target's credit-card team to put in place alternative underwriting and risk-management practices until sufficient improvement is seen.

According to Jefferies retail analyst Daniel Binder, Target told him that its "2008 outlook anticipates performance above" the threshold at which JPMorgan Chase can exercise this degree of involvement.

A Target spokeswoman declined to discuss what may occur beyond then, saying only that Target is "firmly in control of our credit-card operations."

A JPMorgan Chase spokeswoman declined to discuss the situation.

Still, 2009 is just over a month away and economic conditions are showing signs of further deterioration. The Federal Reserve on Wednesday said the U.S. economy could contract for as much as a year.

source : http://money.cnn.com/news

Solon calls for removal of credit card fees

A lawmaker on Monday called on credit card companies to scrap "unwanted" and "burdensome" surcharges following the recent passage into law of a measure installing a credit information system.

Citing Republic Act 9510 or the Credit Information System Law, Cebu Representative Eduardo Gullas urged 15 member firms of the Credit Card Association of the Philippines (CCAP) to immediately remove annual membership fees and extra charges on late payments.

"Issuers no longer have any excuses to continue penalizing credit card holders with no oppressive extra fees and charges, now that we have a new law enabling them to ferret out bad creditors and effectively reducing transaction costs," Gullas said in a statement.

Signed by President Arroyo last October 30, RA 9510 creates the Credit Information Corp. (CIC), which would ease credit processing and lessen transaction costs for credit card issuers, lenders as well as clients. The new credit information system is also expected to minimize the risk of defaults, with CIC providing standardized information on the credit history and financial condition of potential borrowers.

The CIC would be 60 percent owned by the national government, while the remaining 40 percent will belong to qualified private institutional investors such as industry groups of banks, quasi-banks, and other credit-related associations.

Gullas reiterated that local issuers have been punishing consumers with needless fees.

Apart from annual fees and late payment charges, he said, credit card firms charge users an annual interest rate of up to 42 percent, which is almost four times the 11 percent being assessed by card issuers in the US. In other words, credit card companies in the country charge a 35 percent monthly interest, a huge amount compared to 0.91 percent in the US.

"Also, in the US and other countries, card issuers do not impose annual membership fees. Here, issuers collect anywhere from P750 to P1,200 per principal cardholder, plus an extra P500 for every supplementary cardholder. This is outrageous," Gullas said.

According to the Bangko Sentral ng Pilipinas, credit cards account for 5.5 percent of the total loan portfolio of banks, with credit card issuers reporting a total of P106 billion in receivables as of September, up 22.6 percent from a year ago. This is because more than five million Filipinos routinely use credit cards and the number is growing around 10 percent yearly.

source : http://www.abs-cbnnews.com

Reform credit-card practices

You know the financial landscape has shifted dramatically when the big banks and consumer groups agree about credit card debt. The banks, with the consumer groups' support, are asking federal regulators for the ability to forgive up to 40 percent of the unpaid debt of their most troubled customers.

Self-interest is at play, of course. Banks are worried that the most indebted card-card holders will walk away from their obligation much as thousands of homeowners have with mortgages they can't afford. A program to forgive some of the debt will make it easier for banks to collect on the other 60 percent. And if a consumer's credit-card problem is partially relieved, chances are better that mortgage payments will be made.

But the quicksand the banks are trying to pull people from is a hazard they themselves created.

The banks have established a credit-card payment structure that maximizes profit for them but drives costs up for consumers with exorbitant interest rates and late fees.

The House this year has passed a reasonable reform bill that takes some of the most unfair edges off the interest rates and late charges.

The Senate has the reform package on its agenda, and should pass it — with the support of the banks. Without more reasonable payment terms, credit-card users will continue to fall into the kind of debt the banks fear.

source : http://www.democratandchronicle.com

DBS on Monday launched a new credit card targeted at owners and senior executives of SMEs.

The DBS World Business Card offers unlimited free access to over 300 airport lounges to enable bosses who now fly economy, instead of business class to enjoy the benefits of the airport lounge without incurring additional costs.

The card, which is by invitation only, also enables bosses to wine and dine their clients at affordable prices at top restaurants in Singapore and overseas.

DBS will send out invitations for the DBS World Business Card to 10,000 of its SME customer base from Monday.

source : http://www.straitstimes.com

Tame Your Credit Card Interest With Transfers

Paying down debt is one of the best steps consumers can take to get through a recession.

What's on your credit card is one of the most important types of debt to rein in. One way to get control over multiple cards with varying balances and interest rates is to transfer your balances to a new card with a lower rate. In fact, many cards advertise balance transfer rates as low as 0% for a set period, which is an appealing alternative to the annual interest rates of 15% or more.

But as is often the case with credit cards, the devil is in the details. If you are planning on a balance transfer to solve your revolving debt issues, here are a few things to consider.

Teaser rates don't last: Thanks to the Federal Truth in Lending Act, credit card companies are required to outline the card's fees and rates in a table called the Schumer Box. While the information has to be present in the table, it can be confusing, given the myriad of rates and percentages included in the summary. When you locate the table (often found under the "Pricing and Terms" section of the card's introductory materials), find the section that describes the balance transfer APR (annual percentage rate). There will be a number of rates listed, one of which is the 0% APR (or other low rate) that first caught your eye. That rate is the teaser rate, and it can last for just a few months or more than a year. After that introductory period, your rate will automatically switch to the card's higher regular rate.

source : http://www.thestreet.com

Credit Card Defaults Rising, Banks Say

NEW YORK, NY — (OfficialWire) — 10/16/08 — Credit card defaults are rising among U.S. consumers in an already tightening credit environment, various banks said.

J.P. Morgan Chase OTCPK:JPMZP said credit card account defaults rose 45 percent in the third quarter compared with the same period a year ago. The bank predicted 7 percent of their credit card loans would be in default in 2009, The Washington Post reported Thursday.

Capital One, also expects credit card defaults to reach 7 percent next year. In September, 6.34 percent of their credit cards accounts went into default, up from 5.96 percent in August.

The data points to a national spending habit that has U.S. credit card holders living beyond their means.

"Given that the savings rate has been minuscule, there are no reserves in the tank for the consumer to tap his savings to support his spending," Scott Valentin, a financial services analyst at Friedman Billings Ramsey told the Post.

Credit card debt has risen 75 percent in the past 10 years, while U.S. wages and savings rates have stayed flat, the Post reported.

source : http://www.officialwire.com

Toyota to Offer Rewards Credit Card With Points Redeemable at Toyota Dealers

Following years of American tradition, Toyota Financial Services is rolling out its own credit card, the Toyota Rewards Visa, which gives cardholders points they can use towards repairing their current Toyota or buying or leasing a new one.

For every dollar charged to your Toyota Rewards Visa card, you'll get one point. For every dollar you charge on the card at a Toyota dealership, you'll get five points. Toyota doesn't mention in any of its ads how much a point is worth, so we went to www.toyotarewardsvisa.com and used the online points calculator to find out. According to the calculator (and Toyota's Terms and Agreements), 100 points is worth $1 at a participating dealership. That means you'll have to spend $25 at a dealership or $100 elsewhere in order to save $1 on your next Toyota-related purchase, making the dealership points worth 25 cents and regular points worth one cent.

While that's not much, if you use your card a lot and your Toyota only ever needs to go to the dealer for routine maintenance, you could get some real savings out of the card. If Toyota allows you to collect points by charging maintenance on your Toyota car or truck to the card, you may be able to earn a large number of points towards your next visit, but we're not sure if that's the case, nor are we sure if the points can be combined with other offers. Regardless of how you earn the points, they can be used towards maintenance and repairs, Toyota accessories, buying or leasing a new Toyota or buying a used Toyota.

The card also comes with several standard incentives, such as a 0% introductory APR for the first six months. After that, Signature cardholders will pay 11.75% per month while Platinum cardholders will pay 11.75% to 16.99% per month. Your APR will be determined by your credit history. You get 2500 bonus points ($25 at the dealership) on your first purchase, and there is no annual fee and no limit to the number of points you can earn. Points cannot be turned into cash, so you have to use them with Toyota and they expire after December 31st on the sixth year from when they were earned.

source : http://wot.motortrend.com