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Ebook Credit Card Charge-Offs: Clear And Present Danger

Submitted by puput on Sat, 10/31/2009 - 08:13

During the past couple of years with the subprime mortgage crisis reaching its threshold and causing a dramatic rise in mortgage foreclosures in the United States, there have been adverse effects of it to banks and other financial institutions around the globe. Even though the card industry was not directly under the gun, it definitely felt the impact of the crisis since some of primary causes attributed to the mortgage crisis was mortgage delinquencies and an inability of the householders to pay back the money. Many feel that an inability to make the mortgage payments definitely points towards a similar approach towards card payments thus putting at risk the billions of dollars lent to consumers through credit cards.

With credit card debt accounting for about 80 percent of the total debt purchasing and collection activity within the accounts receivable management industry, any major factors influencing the credit card market is a primary concern for creditors.

These factors include:

  • The housing downturn and its influence on increased usage of credit cards
  • The battered consumer, economy and weak job market have affected the card market
  • The slowdown in consumer income growth as debt burdens continue to rise
  • The effect of overall economy on consumer confidence and its potential impact
  • The 2007 performance of creditors amid the credit crunch
  • The overall increase in charge-off rates across the credit card market
  • The increased volume of sales for credit card portfolios as a response to these factors

Card Debt collection is an act of collecting debt accrued on credit cards owed by individual or business on behalf of the creditor, a collection agency will collect debts with a commission based on the debt owed.

Creditors pass debts on to a debt collection agency so that they are wiped from their accounts receivable records. If the amount recovered by the debt collection agency is less than that which is owed, the difference is recorded as a loss. A debt collection agency is subject to regulations such as the Fair Collection Practices Act (FDCPA) and must adhere to legal debt collection strategies.

Accounts receivable that will likely remain uncollectable and will be written off. Charge offs appear as an expense on the company's income statement, thus reducing net income. In general, companies make an estimate of charge off expenses that might be incurred in the current time period based on past records as part of the process of estimating earnings. Most companies make a charge off allowance since it is unlikely that all of their creditors will pay them in full. They are also called bad debt.

CONTENTS

INTRODUCTION
CHARGE-OFFS THE SURGING TREND
CAUSE AND EFFECT
MANAGING THE CRISIS
COLLECTIONS FOCUS STRATEGY 1 - ONLINE COLLECTIONS
COLLECTIONS FOCUS STRATEGY 2 – STRENGTHEN EXISTING COLLECTION PROCESSES
AND SYSTEMS
COLLECTIONS FOCUS STRATEGY 3 - PAYMENT REPRESENTMENT
COLLECTIONS FOCUS STRATEGY 4 - HIRE DEBT COLLECTION AGENCIES
COLLECTIONS FOCUS STRATEGY 5 - COLLECTIONS DIALER
CONCLUSION
ACRONYMS
REFERENCES
ABOUT THE AUTHOR
WIPRO IN BANKING
ABOUT WIPRO TECHNOLOGIES

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