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Originally Posted by Mormon Red Death
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Yep. I am unfortunately on the front line of this, at one of the banks prominently mentioned in the article.
The article is basically true, though it may overstate things a bit. It is true that losses have been going way up, and will continue, and it is true that rates will be rising. Part of this is to offset credit losses, and part of it is to offset the decrease in revenue because we no longer are booking the type of people who 2 years ago were our best customers. We have known for months that the next wave would be credit card defaults, and have been expecting coverage like this to pick up.
The good news is that, at least at my bank, we were never as stupid as some of the people involved in the mortgage mess. The article says that sub-prime accounts make up 30% of credit card debt. Under any definition of sub-prime that I have seen, we are not even close to that. Also, we had a little longer time to prepare than the mortgage people. We have been getting less and less aggressive in marketing since 3rd quarter of 2007. We are currently declining about 1/3rd of the applications that would have been approved 2 years ago, maybe even more than that. Unfortunately, even though that means our current book of business will look pretty good, it will hurt how we look in 2009 overall. Credit cards losses don't ramp up until 9 or 10 months after booking, so for the first year on the books, all the new balances "hide", to an extent, losses on earlier vintages. Since the entire industry is going to book far less balances in the next year, the losses will not have nearly as much "good" outstandings to balance them out, so losses are going to go up for the next year or so, no matter what happens in the economy.