Bank News

Credit Card Business Model Tested in Current Downturn

2009-07-15T07:01:55-07:00

As defaults ratchet up and expectations for future grow is pared, major credit card issuers are finding it more difficult to navigate the all-important institutional investment well for operational cash.

Discover Financial Services, facing the need for additional funding while revenues are declining and credit card chargeoffs are growing, received only a lukewarm response from the equity market as a public offering last week of its common shares had to be priced at a 12 percent discount to the market. Though the price has recovered some thanks to a positive comment Monday from Goldman Sachs analyst Richard Ramsden, who put the stock on his "Conviction Buy List," most indications are that Discover and other credit card firms will continue to struggle with investors the rest of the year.

“Right now there is a great deal of risk aversion when it comes to credit cards,” said Dan North, chief economist at Euler Hermes ACI, a trade credit insurance firm. “The credit panic started last fall. There is a recognition that delinquencies will continue to go up.”

As a result, people started using their credit cards less, meaning less interchange income from transactions. But even as the savings rate has risen nationally, there are still a large number of consumers who got too far into debt and are not able to keep up with their card payments. Many have lost jobs, as evidenced by the nation’s rising unemployment rate.

The credit card firms have also become defensive, cutting credit lines, raising fees and changing interest rates from fixed to variable, both in response to the need for more revenue now and to prepare for the restrictions from the “Credit Cardholders Bill of Rights,” which goes into effect next year.

Anyone providing funding for the card firms (e.g., equity buyers) is looking at these issues as well as the creditworthiness of the cardholders. According to North, Discover cardholders have weaker credit ratings, on a whole, than holders of MasterCards, Visas and American Express cards, though those companies are battling the same financial challenges.

All of those factors have also made it difficult for a new competitor in the market, Revolution Money, a payment platform complete with credit card and money transfer service designed to compete with major card companies Visa, MasterCard, Discover and American Express.

Revolution LLC, headed by AOL founder Steve Case, had hoped to compete mainly by offering better security through a chip-based card and lower interchange fees to merchants ("Revolution Card Could Shake Up Visa, MasterCard," Sept. 27, 2007). But the company is having trouble finding traction in the current economy.

“Their funding model is being challenged; there’s been a general shift from credit to debit,” said Tower Group analyst Brian Riley, adding that the current economic situation means the Revolution Money card is no longer as compelling as it was when it launched in 2007. However, when the economy picks up, there will be room for new niche players like Revolution, according to Riley.

A group of niche players that are gaining more traction now, according to a Scripps Howard News Service report, is peer-to-peer lending (P2P), which completely bypasses traditional financial institutions. P2P lending services bundle pledges from individual investors and offer small loans to other individuals at attractive rates, a model that could evolve into direct competition for credit cards.

According to research from Celent, the growth of P2P lending over the second half of this decade has been dramatic. In 2005, there was $118 million in outstanding P2P loans in the U.S., in 2007, the figure stood at $647 million. By the end of next year, Celent projects the total to reach more than $5 billion.

<<< Return to Newsletter

Global Consumer Acquisition Corp. Announces Agreements to Recapitalize Nevada Community Banks

2009-07-14T07:08:36-07:00

LAS VEGAS -- Global Consumer Acquisition Corp. (GCAC) announced today entry into agreements for concurrent acquisitions of:

The Nevada branch operations and certain assets of Colonial Bank, a subsidiary of The Colonial BancGroup, Inc. (NYSE: CNB - News), a $26 billion financial services company. The acquisitions will include approximately $440 million of loans and approximately $492 million in deposits; and.
1(st) Commerce Bank, a de novo Nevada bank formed by Capitol Bancorp Limited (NYSE: CBC - News) and local Nevada executives. 1(st) Commerce carries a Nevada bank charter under which the combined entity will continue to operate.

Post-closing, GCAC will be the largest recapitalization of a newly formed commercial bank holding company by a SPAC in US history, and be re-named Western Liberty Bancorp (WLB). WLB will become a bank holding company and its banking operations will be conducted through its newly acquired subsidiary, which will retain the 1(st) Commerce Bank name.

1(st) Commerce Bank will have 22 branch locations in the State of Nevada. WLB will have approximately $477 million of Gross Loan Assets, $320 million of Transaction Account Deposits and $214 million in Time Deposits, with residual brokered deposits of less than $13 million.

WLB will focus on conservative business and commercial real estate lending, consumer lending, trade finance and depository products. WLB, through GCAC's management oversight, will be instrumental in overseeing the credit processes of 1(st) Commerce Bank, and will be ideally positioned to capitalize on recent financial market turmoil, troubled assets and increased regional and commercial banking closures over the past twelve months. The recapitalization plan is anticipated to create what is likely to be a substantially "over capitalized" financial institution to benefit from tight lending markets and current economic conditions.

High Quality Balance Sheet

As part of the acquisition process, GCAC had the opportunity to select which assets of Colonial Bank it would acquire. GCAC and its outside consultants and advisors also performed a thorough analysis of 1st Commerce Bank's loan portfolio. GCAC engaged Crowe Horwath LLP, Proskauer Rose LLP and Brownstein Hyatt Farber Schreck, LLP to assist in reviewing the loan portfolios of both Colonial's Nevada Region and 1st Commerce Bank.

Transaction Valuation

GCAC expects to "create" WLB at a compelling valuation of approximately 1.29x projected initial tangible book value of $255.7 million (subject to final purchase accounting adjustments) and 1.11x initial book value on a GAAP basis with a 32% capital ratio (assuming all public shares remain outstanding following the closing of the acquisitions) suggesting significant opportunity to grow the balance sheet. Notably, GCAC has self-selected the substantial majority of its loan portfolio in an effort to minimize "legacy loan" exposure.

Experienced Management to Drive Growth Strategy

Western Liberty Bancorp's management team will have significant experience in growing core deposits and deep relationships in the local community, and expects to retain and expand its core deposit base through its branch network and traditional business and private banking. WLB expects to capitalize on its well-established community relationships to source loans while leveraging the credit background of its management team to increase the efficiency and effectiveness of its underwriting processes. Additionally, the local team will be complemented by GCAC's sponsorship, which enjoys a long history in the financial services industry with extensive experience in credit processes.

Mark Daigle has served as President/CEO of Colonial Bank's Nevada operations, and has led the growth of the business from approximately $250 million in deposits in 2001 to almost $1 billion, and from 8 to 22 branches, within eight years. Daigle has been an active member of both the business and civic communities of Nevada throughout this time. After receipt of all necessary regulatory approvals for the two transactions, Daigle will serve as President and CEO of 1(st) Commerce Bank, and will serve on the Board of Directors of WLB.

Jason Ader, highly regarded by the investment community as one of the country's foremost investors in the real estate, gaming and hospitality industries will serve as Chairman and Chief Executive Officer of WLB and Chairman of 1(st) Commerce Bank. Ader serves on the Board of Directors of Las Vegas Sands Corp, and is founder and CEO of Hayground Cove Asset Management, a New York-based investment management firm.

Daniel Silvers will serve as President of WLB and will serve on WLB's Board of Directors. Silvers, President of Hayground Cove Capital Partners LLC, previously had responsibility for gaming and real estate investments at Fortress Investment Group, a leading global alternative asset manager. Silvers has been instrumental in transactions within the real estate, gaming and hospitality industries totaling over $13 Billion.

Laus Abdo will serve as Chief Operating Officer of WLB, bringing over 20 years of Nevada based experience in commercial real estate and gaming lending.

Deep Nevada Expertise and Market Knowledge

"We are pleased to utilize our SPAC investment vehicle to create this "new" Nevada financial institution, which will benefit investors and consumers alike. This transaction is a positive step for the Nevada banking system, as we expect our self-selected loan portfolio and well-capitalized balance sheet will enable us to lend and acquire loan assets at attractive levels. WLB plans to be a very active partner in government-assisted deals involving other depository institutions, and will seek organic growth in deposits driven by our strong branch network and external growth through prudent acquisitions. Few of our competitors have the capital and the team required to execute on our business plan in today's economic environment," said Jason Ader, future Chairman and Chief Executive Officer of Western Liberty Bancorp.

"We are creating what we expect to be recognized by consumers and local businesses as the dominant community bank in Nevada, given our strong capital base and balance sheet. We have an outstanding Nevada banking team, and are very excited about the future," said Mark Daigle, future President and CEO of 1st Commerce Bank. "Nevada continues to offer one of the most favorable business environments in the country, which combined with a revitalized platform for growth makes for a truly winning formula. As with the predecessor operations, we will continue to be strong supporters of the business and civic communities in which we operate."

Financial Sponsorship

Hayground Cove Asset Management and GCAC have entered a financing arrangement to provide Hayground Cove with commitments of up to $140 million, with GCAC committing to purchase the shares at Hayground's basis post-closing. Such commitments are subject to a restructuring of all warrants in a manner acceptable to Hayground Cove.

Approvals

The proposed transaction has received the necessary approvals from the respective board of directors of the entities involved in the transactions, and is subject to regulatory approvals and other customary closing conditions. Overall timing of closing of a transaction will be driven by the timing of regulatory approvals.

Conference Call:

A conference call will be held today, at 10 AM EST Tuesday, July 14(th). Participants may dial in to 1-866-394-6573, Conference ID # 20170496

A digital recording of conference will be available for replay two hours after the call's completion. To access the recording, guests will dial 1-800-642-1687 or 1-706-645-9291.

About Global Consumer Acquisition Corp.
Global Consumer Acquisition Corp. is a blank check company organized for the purpose of effecting a merger, capital stock exchange, asset or stock acquisition, exchangeable share transaction, joint venture or other similar business combination with one or more domestic or international operating businesses.

<<< Return to Newsletter

TransUnion Consumer Credit Risk Index Hits Record Level

2009-07-09T07:11:22-07:00

CHICAGO -- The TransUnion Credit Risk Index, a statistic developed to measure the changes in average consumer credit risk within various geographies, increased 1.98 percent from 124.79 in the fourth quarter of 2008 to 127.26 in the first quarter of 2009. On a year-over-year basis, the Credit Risk Index increased 7.10 percent (from 118.83 in the first quarter of 2008), the largest increase for that time period in this decade. The Credit Risk Index is defined as the weighted average probability of 90-day delinquency or worse among consumers in a given region relative to the nation as a whole.

"The Credit Risk Index is a true barometer of today's economy, and the first quarter of 2009 indicates that the inherent level of credit risk within the U.S. is now 27.26 percent higher than the level reflected in TransUnion's consumer credit database at the conclusion of 1998," said Chet Wiermanski, global chief scientist at TransUnion. "Credit Risk Index data suggest that the growth in consumer credit risk has slowed during the past quarter, a positive note. However, the index remains at an all-time historical high, indicating that delinquencies and foreclosures will continue to rise in the coming months."

On a state basis, Mississippi ranks as the riskiest state in the nation with a Credit Risk Index of 166.45. It is followed closely by Texas (162.59), Nevada (158.97), South Carolina (158.76) and Louisiana (153.84). The least risky states include: North Dakota (82.02), Minnesota (88.53), Vermont (91.82), South Dakota (94.75) and Iowa (95.26).

The states that experienced the largest quarterly changes included Nevada (4.25 percent increase), Arizona (4.06 percent increase) and California (3.98 percent increase). Though Louisiana's Credit Risk Index is the fifth highest in the nation, it is the only state that experienced a drop on a quarterly basis of .03 percent. Arkansas experienced a minimal 0.01 percent gain while Vermont increased 0.52 percent.

On a year-over-year basis, Arizona (14.82 percent increase), Nevada (14.38 percent) and California (13.82 percent) had the highest percentage increases. The three states with the lowest yearly percent increases included, Alaska (1.51 percent increase), Vermont (2.17 percent increase) and Kentucky (2.85 percent increase).

"It is apparent that many of the states experiencing the highest increases in credit risk are the same when looking at the Credit Risk Index statistic on both a quarterly and yearly basis," said Wiermanski. "This leads TransUnion to believe that consumers in these states will experience prolonged systemic difficulties in both in their ability to satisfactorily repay their existing credit obligations and in their ability to acquire new credit.

"While an individual credit score can be quite powerful and accurate in predicting the probability of delinquency for an individual, the average credit score for a specific geography or customer segment does not accurately portray the level of risk existing within that footprint or segment to the same degree as TransUnion's Credit Risk Index. This is because most credit scores are built on a non-linear scale, so averaging scores does not yield the correct measure of underlying probability of default. Credit Risk Index is a great instrument for gaining insight into the potential impact of external factors on the credit risk and rate of default within a given region, or for a given population segment, precisely because it accounts for the non-linearity of the underlying credit score," continued Wiermanski.

The Credit Risk Index uses the fourth quarter of 1998 as a baseline for comparison. Therefore it measures changes in consumer credit score distributions relative to the national distribution and delinquency rates as a whole at the end of 1998. This is considered by TransUnion as a representative year of credit performance within the usual dynamic of the historical credit cycle. A value of more than 100 represents a higher level of relative risk.

TransUnion's Credit Risk Index reflects the distribution of consumer credit risk as measured by TransUnion's TransRisk Account Management Credit Risk Model and is a key metric within TransUnion's Trend Data database. For comparison purposes, the Credit Risk Index in recent years has generally ranged between 110 and 120, experiencing a one- or two-point shift between quarters.

TransUnion's Trend Data database
The source of the underlying data used for this analysis is TransUnion's Trend Data, a one-of-a-kind database consisting of 27 million anonymous consumer records randomly sampled every quarter from TransUnion's national consumer credit database. Each record contains more than 200 credit variables that illustrate consumer credit usage and performance. Since 1992, TransUnion has been aggregating this information at the county, Metropolitan Statistical Area (MSA), state and national levels. www.transunion.com/trenddata

About TransUnion
As a global leader in credit and information management, TransUnion creates advantages for millions of people around the world by gathering, analyzing and delivering information. For businesses, TransUnion helps improve efficiency, manage risk, reduce costs and increase revenue by delivering comprehensive data and advanced analytics and decisioning. For consumers, TransUnion provides the tools, resources and education to help manage their credit health and achieve their financial goals. Through these and other efforts, TransUnion is working to build stronger economies worldwide. Founded in 1968 and headquartered in Chicago, TransUnion employs associates in more than 25 countries on five continents. www.transunion.com/business

<<< Return to Newsletter

Consumer Bankruptcies on Pace to Hit Pre-Reform Levels in 2009

2009-07-08T07:14:21-07:00

There were roughly 675,000 consumer bankruptcy filings in the first half of this year, according to data released last week by the American Bankruptcy Institute.

If the current pace continues, more than 1.3 million consumer bankruptcies will be filed this year, a level that hasn’t been seen since 2005, a record-breaking year for consumer bankruptcy protection requests. The record that year was due, in large part, to a change in bankruptcy laws that made it harder for consumers to file and provided some protection for creditors.

The new bankruptcy law led to a large spike in filings just before it took effect, and a sharp drop-off for the next several quarters. There were nearly 2.04 million consumer filings in 2005, and only a quarter of that the following year, according to American Bankruptcy Institute statistics. Annual bankruptcies didn’t surpass 1 million again until last year. The first time consumer bankruptcies had topped 1 million was 1996, at more than 1.1 million. From 1997 through 2004, bankruptcies ranged between 1.2 million and 1.6 million.

The American Bankruptcy Institute reported that the overall June consumer filings total of 116,365 was 40.6 percent higher than the 82,770 consumer filings recorded in June 2008. While the June total represented an increase over the previous year, it was 6.8 percent lower than the total from May 2009. Chapter 13 filings constituted 27.7 percent of all consumer cases in June, a slight increase from May.

But the quarter-over-quarter trend is pointing higher. According to ABI data, there were 316,158 total consumer filings in the first quarter of 2009 and 359,193 filings in the second quarter, a level that roughly mirrors quarterly filing averages seen before the bankruptcy reform legislation was passed in 2005.

The trend prompted ABI Executive Director Samuel J. Gerdano to comment, “We expect that there will be more than 1.4 million new bankruptcy filings by year end.”

The more bankruptcy filings, the harder it is for collection agencies to recover debts, says Dan North, chief economist at Euler Hermes ACI, a trade credit insurance firm. The collection agencies tend to be collecting unsecured debts, which fall behind secured debts when the bankruptcy courts allocate the debtor’s assets.

And debtors have become smarter about protecting their assets, North adds. So if a debtor has disposable income, he’ll put it into an IRA or some other vehicle outside of the reach of the bankruptcy court.

This is likely occurring more often, according to North, who points out that disposable income is increasing at the same time that bankruptcies are. Many consumers are putting that additional disposable income into savings as evidenced by the sharply rising savings rate.

“The bankruptcies will continue after the recession is over,” North added. “Bankruptcies and unemployment will likely continue for a couple of quarters.”

North added that the recession itself could be near an end, but business and consumers alike, who were burned by the economic conditions of the last couple of years, are very unlikely to recover very soon because many had gotten themselves too deep into debt and had nothing to fall back on when real estate-related credit started drying up.

<<< Return to Newsletter

Americans Going Delinquent on Loans at Record Pace

2009-07-07T07:23:17-07:00

A soaring unemployment rate is causing more Americans to fall behind on loans of all types in record numbers, according to data released Tuesday by the American Bankers Association.

In the first quarter of 2009, the ABA’s composite ratio of delinquencies across eight loan types reached its highest level since the association began tracking late payments in 1974.

The late payment ratio rose to 3.23 percent of all accounts (seasonally adjusted) compared to 3.22 percent of all accounts in the previous quarter. The delinquent balances on those accounts also rose from 3.16 percent to 3.35 percent of total balances due.

“The number one driver of delinquencies is job loss,” said ABA Chief Economist James Chessen. “When people lose their jobs, they can’t pay their bills. Delinquencies won’t improve until companies start hiring again and we see a significant economic turnaround.”

The ABA defines a delinquency as a late payment that is 30 days or more overdue.

The first quarter composite ratio is made up of the following closed-end loans. All figures are seasonally adjusted based upon the number of accounts:

Home equity loan delinquencies increased from 3.03 percent to 3.52 percent.
Property improvement loan delinquencies decreased from 1.75 percent to 1.46 percent.
Indirect auto loan delinquencies decreased from 3.53 percent to 3.42 percent.
Direct auto loan delinquencies increased from 2.03 percent to 3.01 percent.
Marine loan delinquencies decreased from 2.35 percent to 2.04 percent.
RV loan delinquencies increased from 1.38 percent to 1.52 percent.
Mobile home loan delinquencies increased from 2.96 percent to 3.70 percent.
Personal loan delinquencies increased from 2.88 percent to 3.47 percent.

Although not included in the composite ratio, the ABA also noted that bank card delinquencies rose 23 basis points to 4.75 percent of all accounts, compared to 4.52 percent in the previous quarter. However, the balances on those delinquent accounts rose dramatically, up 108 basis points to 6.60 percent of the value of all outstanding bank card debt, marking a new record.

<<< Return to Newsletter

TDECU and TNB Card Services Create One-of-a-Kind Credit Card

2009-07-06T06:54:15-07:00

Dallas – Texas Dow Employees Credit Union (TDECU) and TNB Card Services have launched a one-of-a-kind elite card product that blends revolving and non-revolving credit to offer Triple the Buying Power™. The Onyx card, created specifically for TDECU members, was developed to compete against elite card brands.

Unlike any other credit union credit card, the Onyx card blends revolving and non-revolving credit, targeting members with credit scores of 720 and higher. A cardholder with a $10,000 credit limit can access up to three times the line of credit, for purchasing power up to $30,000. The first $10,000 is on a revolving limit, like a traditional credit card, in which the balance due can be paid in full each month, or revolve with interest. The remaining balance, or non-revolving credit, is due in full at the end of each billing cycle.

In addition to Triple the Buying Power, cardholders earn up to two percent cash back for all purchases, including non-revolving transactions. TDECU also customized a benefits package comparable with other high-end national credit cards. It includes benefits such as concierge service, extended warranty, price protection, Purchase Assurance, Master Rental, travel accident and baggage delay insurance, and ID theft resolution.

“We worked with TNB to create this card to fill a void for members that use competing high-end credit cards,” said Ron Wright, vice president of payment systems for TDECU. “We don’t just want a credit card. We want to offer an experience card.”

TDECU and TNB worked closely together to develop the card strategy and benefits, as well as the back-end system to ensure TDECU could effectively manage the card program.

Wright added, “We took a look at our entire membership and selected benefits that we felt would be attractive to our members from a brand and feature perspective.”

Darby McDermott, account executive with TNB Card Services, commented, “It wasn’t an easy task, considering we completely customized our processing for this product by developing new fraud tables and risk management strategies, in order to manage the complexity and expansion of the product. We also deployed an advanced behavioral scoring system to routinely monitor cardholder credit and automatically set new spending thresholds based on evolving credit score.”

The Onyx card was rolled out to select members for testing and is now available to all qualifying members. TDECU will begin aggressively promoting the card in the fourth quarter of this year.

About TDECU
Founded in 1955, TDECU is a not-for-profit financial cooperative with over 120,000 members and more than $1.4 billion in assets. TDECU currently has 18 service locations and offers a complete selection of convenient, innovative, and competitive products and services — including savings, checking, certificates of deposit, IRAs, money market accounts, auto and home loans, credit cards, free online banking and bill pay, insurance, investment services, business services, and much more. Members can also access over 37,000 surcharge-free Allpoint™ ATMs.

About TNB Card Services
TNB Card Services, owned and directed by credit unions since 1976, provides electronic payments processing for credit unions nationwide. Serving more than 550 financial institutions of all sizes and managing more than 2 million cards, Dallas-based TNB enables credit unions to enhance member loyalty through credit union-branded card products. For more information about TNB, go to www.tnbcard.com or call Mark Fenner at 1-800-422-0733 ext. 6655.

<<< Return to Newsletter

CBA President Says Proposed Consumer Protection Act is a Bridge Too Far

2009-07-06T06:54:15-07:00

Arlington, VA — Twenty-four hours after the White House released draft legislation to create a new federal agency focus on issuing rules and regulations for consumer-oriented products, the Consumer Bankers Association held a conference call with its membership to discuss the impact of the proposed legislation on the retail banking industry. Following the call, Richard Hunt, CBA’s president, made the following statement about the proposed bill:

"The CBA reiterates the desire to bring about much needed reform in the banking industry. The pact that banks have with consumers— their clients— to provide transparent, easy-to-understand loans for home ownership, a child's education and other important life events is of utmost priority.

"We have thoroughly examined the Administration's proposal to create a new federal agency to regulate the relationship between retail banks and their customers, and the mandates imposed by the government.

"It is a bridge too far.

"This proposal will unfortunately have the unintended consequences of reducing credit and raising banking costs for Americans by creating needless uncertainty in our country’s consumer financial services industry. This plan imposes extraordinary restrictions on the ability of retail bankers to meet their clients' needs, and to do so in a timely, cost effective manner.

"We will continue to work with the Administration and members of Congress to reach a favorable conclusion for the American consumer."

For ninety years the Consumer Bankers Association has been the recognized voice on retail banking issues in the nation’s capital. Member institutions are the leaders in consumer financial services, including auto finance, home equity lending, card products, education loans, small business services, community development, investments, deposits and delivery.

CBA was founded in 1919 and provides leadership, education, research and federal representation on retail banking issues such as privacy, fair lending, and consumer protection legislation/regulation. CBA members include most of the nation’s largest bank holding companies as well as regional and super community banks that collectively hold two-thirds of the industry’s total assets.

<<< Return to Newsletter

Card Chargeoffs Accelerate, Break 10 Percent Barrier in May

2009-07-02T06:00:14-07:00

Credit card chargeoffs are continuing to grow, with no immediate signs of any change despite some improvement in overall financial institution performance in the last couple of months.

The rise in the chargeoff rate crescendoed past a key barrier in May, as Moody’s Investor Service reported that its credit card index showed a nationwide average chargeoff rate of 10.62 percent. It’s the highest rate ever recorded by the ratings agency and marks the first time the rate has been above 10 percent.

Card loss rates have been closely tracking the unemployment rate over the past year, according to Fitch Ratings. The firm expects credit card performance to “deteriorate further over the balance of the year as unemployment rises and card portfolios contract” according to a recent analysis report.

But bankers at J.P. Morgan Chase and Bank of America had warned recently that the loss rates could exceed the unemployment rate in this severe downturn.

J.P. Morgan Chase said that chargeoffs at it Chase card operations would likely hit 9 percent to 9.5 percent soon. The company said its managed net chargeoff rate hit 7.7 percent in the first quarter, up from 5.6 percent the previous quarter and well above the 4.4 percent seen a year ago.

In its first quarter earnings, announced after the close of the stock market on Tuesday, Capital One announced that charge-offs increased to 8.39 percent in the first-quarter from 7.08 percent in the fourth quarter.

Capital One set aside $124.1 million for loan losses, anticipating a further deterioration of its credit portfolio that is under pressure as unemployment rises.

The Labor Department reported early Thursday that the unemployment rate for June was 9.5 percent, up from 9.4 percent in May.

The ARM Unemployment Rate, created by industry advisory firm Kaulkin Ginsberg, rose 8.28 percent to 13.07 percent, according to the latest Kaulkin Ginsberg Consumer Finance Report. The ARM Unemployment Rate is a measure of unemployment that gages the total impact of labor market weakness for the ARM industry by aggregating unemployment and underemployment among the demographics most likely to fall within the industry’s purview.

<<< Return to Newsletter

Persolvo Data Systems Adds Over 100 Debt Settlement Companies and $1.2 Billion in Debt to its Database in Q2

2009-07-02T06:00:14-07:00

Irvine, CA - Persolvo Data Systems, the leading provider of aggregated account information of consumers enrolled in debt settlement programs, announced today that is has added over 100 debt settlement companies to its online settlement database and has increased the total face value of debt in its system by over $1.2 Billion in the second quarter of 2009. This represents a growth of over 100% from the first quarter of 2009 in the face value of debt available for settlement through the Persolvo system. Additionally, the company reported strong growth in both the number of settlements submitted by creditors and accepted by debt settlement companies during the same period.

Wade Torkelson, President of Persolvo Data Systems, commented, “We continue to see a growing demand from both the debt settlement industry and the credit and collections industry to utilize our web-based settlement tools to complete large volumes of settlement transactions between creditors, debt buyers, collection agencies and legal recovery firms, and debt settlement companies.”

Persolvo Data Systems is the first web-based settlement application of its kind to provide visibility of large numbers of accounts in debt settlement, as well as real-time visibility of the current pre-approved settlement savings balances accrued by the debtor that are immediately available for settlement.

According to The Association of Settlement Companies, the debt settlement industry returned over $1.7 Billion in actual settlements to creditors and collectors in 2008. Teresa Schumann-Dodson, EVP of Persolvo Data Systems, noted, “In difficult economic times when collections and recoveries are significantly down, debtors enrolled in debt settlement programs represent one of the most highly-motivated and highly-liquid segments of accounts in the debt lifecycle. Access to their information can have a dramatic impact on the liquidation rates of these portfolios when effectively leveraged.”

About Persolvo Data Systems
Persolvo Data Systems is the first patent-pending system to aggregate account information on debtors enrolled in voluntary workout programs with leading debt settlement companies and law firms. Persolvo’s web-based settlement application allows creditors and collectors to locate debtors enrolled in debt settlement programs, analyze their account information to uncover highly-liquid settlement opportunities, and settle large numbers of accounts online with hundreds of debt settlement companies using Persolvo’s hosted settlement application. The Persolvo system is the largest database of aggregated debt settlement accounts available today and provides the most accurate and up-to-date information, including settlement savings balances, on debtors enrolled in debt settlement programs. For more information, visit our website at persolvodatasystems.com.

<<< Return to Newsletter

FDIC Announces Settlement With Advanta Bank Corporation for Deceptive and Unfair Practices

2009-07-02T06:00:14-07:00

Today the Federal Deposit Insurance Corporation (FDIC) announced a settlement with Advanta Bank Corporation, Draper, Utah (Advanta), for deceptive and unfair practices in violation of section 5 of the Federal Trade Commission (FTC) Act.

Under the settlement, Advanta has agreed to an order to cease and desist, to pay restitution, and to pay a civil money penalty in the amount of $150,000. In addition, restitution of approximately $14 million will be paid to businesses that used Advanta's Cash Back Reward program and $21 million to accountholders whose accounts were repriced. In agreeing to the issuance of the order, Advanta did not admit or deny any liability.

Advanta's "Cash Back Reward" program advertised a percentage of cash back on certain purchases by business credit card accountholders. Due to the tiered structure of the cash back payments, however, the advertised percentage was not available for all purchases. As a result, it was effectively impossible to earn the stated percentage of cash back reward payments. The FDIC concluded that the Bank's solicitations were likely to mislead a reasonable customer and that the representations were material and that therefore, the Bank engaged in a pattern of deceptive acts or practices in violation of Section 5.

In addition, numerous complaints were filed regarding Advanta's substantial annual percentage rate (APR) increases on the accounts of small business owners and professionals, who had neither exceeded their credit limits nor were delinquent in making payments on their accounts. The FDIC determined that Advanta's rate increases had been implemented in an unfair manner, that Advanta failed to adequately notify accountholders that their APR had increased, the amount of the increase, the reason for the increase, the procedures to opt-out and the consequences of an opt-out. The repricing caused substantial injury to customers, withheld and/or provided inadequate information that could have enabled the customer to reasonably avoid the injury, and provided no benefit to the customer or competition.

"The Advanta settlement demonstrates the FDIC's commitment to having banks take responsibility for ensuring that they do not engage in unfair or deceptive acts or practices in connection with the banking products and services they offer," said FDIC Board member Thomas J. Curry. "Any person doing business with an insured depository institution can expect to be treated fairly, and any such entity that engages in unfair or deceptive acts or practices should be aware that the FDIC will pursue such practices with all of the legal authority at our disposal."

Copies of the FDIC's Order to Cease and Desist and Order to Pay issued against Advanta are available at the FDIC's website at http://www.fdic.gov.

<<< Return to Newsletter

Credit Solutions Settles $29.5 Million In Consumer Debt During June

2009-07-02T06:00:13-07:00

DALLAS -- Credit Solutions settled $29,544,297.81 in June 2009, saving $14,291,563.27 on 4,885 client accounts - a 51% average settlement offer percentage rate.

"The offer percentage rate is the difference between the actual amount owed and the amount of savings we obtained for clients," said Credit Solutions CEO Doug Van Arsdale. "That is, Credit Solutions customers resolved their debts by paying an average 51% of what they owed."

"Of $29.5 million in unsecured client debt, our Settlement Advisors obtained $15 million in settlement offers from creditors this month alone, which is testimony of their strong negotiating skills as well as our company's leverage with creditors," which does not include the value for any term settlements, Van Arsdale said.

Settlement companies act on behalf of consumers, negotiating directly with creditors to facilitate repayment of consumer debts at a reduced percentage of the total amount owed. In return, consumers generally pay a monthly service fee. Upon completion of a settlement program, all of the consumer client's debts included in the program are "settled," or resolved with zero balances.

Perhaps the greatest benefit of debt settlement - a rapidly growing service industry in today's economy - is it gives consumers a chance to start over debt-free and develop long-term saving habits.

"We view ourselves as financial coaches," Van Arsdale said. "We settle approximately $30 million in unsecured debt every month, backing our clients with our industry knowledge and a tremendous amount of buying power that we have with these creditors."

Since its 2003 founding, Credit Solutions has settled more than $970 million in unsecured client debt and currently manages $2.25 billion of consumer debt for nearly 100,000 U.S. clients.

About Credit Solutions
The U.S. settlement industry innovator, Credit Solutions is recognized by the American Business Awards for the "Best Customer Services Department in Financial Services" and won a 2009 Red Herring North American Award for its innovative, online technology. ISO 9001:2008 certified for standardized business practices, Credit Solutions is a charter policy partner of the United States Organization for Bankruptcy Alternatives (USOBA) and accredited through BSI Management Systems for compliance with USOBA Best-Practice Standards. For more information about Credit Solutions' award-winning debt settlement program, please visit www.creditsolutions.com.