Newspaper article The Christian Science Monitor

Credit Card Bankruptcy Up Banks Raise Fees and Litigate against Fraud

Newspaper article The Christian Science Monitor

Credit Card Bankruptcy Up Banks Raise Fees and Litigate against Fraud

Article excerpt

EVER wonder why bank credit card fees began to rise a few years back?

One way of looking at it is that half of that fee is used to cover defaultsby consumers who declare bankruptcy.

"If they go into bankruptcy there's nothing we can do but write it off,"says Beth Metzer, a spokeswoman for Sears' Discover card in New York. "It'sdefinitely an issue that every credit card company faces."

And the problem is growing. Nearly 600,000 households in the United Statesdeclared bankruptcy in 1988, according to a report by Visa U.S.A. Inc. That'sone in every 178 - double the rate of personal bankruptcies in 1980.

Robert Johnson of Purdue University's Credit Research Center in WestLafayette, Ind., says nonbusiness bankruptcies rose 12.2 percent in the US in1989, with the economy still expanding.

"If we're going at 12.2 percent in good times, what's it going to be likein bad times?" he asks.

Visa expects an increase of 52,000 bankruptcies each year for the next sevenyears, compared to a 39,600 annual increase from 1980-88. And they will bebigger, averaging $50,000 per filing compared to $37,400 in the earlier period,the San Francisco-based company projects.

The cost per fee-paying bank card account is similarly rising: $3 in 1980,$13 in 1988, and a projected $25 in 1995. Borrower's market

According to Visa and New York-based Citibank, the nation's largest issuerof bank cards, the rise in bankruptcies is caused by several factors. Anincrease in the availability of credit made overborrowing easier. A change inthe law in 1978 made it easier to declare bankruptcy and more difficult forcreditors to collect. Advertising by lawyers draws attention to the bankruptcyoption. And bankruptcies by notable personalities and companies have lessenedthe social stigma.

"It's very easy to tell when an honest person through no fault of their owngets into trouble," Visa spokesman Gregory Holmes says. "We want to help themas much as possible."

Then there are the cases of bankruptcy fraud, such as a car salesman earning$100,000 a year who filed for bankruptcy, declaring $450,000 in unsecured debt.This included $138,000 on 20 Visa and Mastercard accounts, $21,000 on 15department store cards, and $177,000 in several personal lines of credit and alease on a Mercedes Benz. …

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