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From the March 2002 Issue of CardTrak |
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Less than two weeks after one of the worst credit card deals in the country
bit the dust, another equally lousy card has surfaced to take its place.On March 1st, the Office of the Comptroller of the Currency shut down Florida-based Net First National Bank, the bank behind the Net 1st MasterCard. The other two companies involved with the program are Colorado-based Equitex and its Florida-based Key Financial Systems subsidiary. Together, the three companies concocted a MasterCard program that issued credit cards to consumers without a credit check or a security deposit. The program was simple enough: issue all applicants, regardless of their credit history, a credit card with a $500 credit limit and immediately charge $500 in fees, thereby reducing the available credit to $0. As the cardholder pays down the balance, the credit line will open and a credit history may build. Under the program, cardholders are required to make a $15 per month payment of which $7 is applied to the outstanding balance and $8 is applied to a ongoing monthly fee. The Net 1st MasterCard is such an ingenious program that it was patented as the "Pay-As-You-Go" credit card program. However, this is a credit card for the "totally financially illiterate." Imagine finding someone who agrees to accept a $500 debt for nothing in return, and then agrees to pay off the debt over six years, and on top of all this, agrees to give you $8 per month or $576 over the life of the deal because you're such a nice guy. Absurd? Believe it or not, more than 500,000 Americans are believed to have signed up for this sucker program. The Net 1st MasterCard may appear to be a credit card, but it is essentially a prepaid debit card with absolutely no risk to the issuer. With the program it will cost you $1,076 to build a $500 credit line! It is likely that the credit card program will return under another name. However, other producers of lousy credit cards have seized upon Net 1st's demise to hit the market with similar products. The folks that brought you the equally lousy "Future VISA Card" program, have now dreamed up another doozie: the "AmeriOneCard MasterCard." Robert Johnson of Tampa, Florida and his staff at JohnsonLane.Com Marketing Services are flooding the Internet with offers for the new card which is issued by First National Bank of Central Texas. Unlike the Net 1st MasterCard, the AmeriOneCard does not come with an immediate balance. Rather, you are required to deposit at least $15 per month to the card to build an available balance. For the privilege of saving $15 per month to your card account, you agree to pay an $89.95 membership fee and a $9.95 monthly maintenance fee. In order to build a $500 available balance with $15 monthly deposits, it will cost you $428 in fees! Imagine paying someone hundreds of dollars for the opportunity to save. While the AmeriOneCard is nothing more than a prepaid debit card, it is reported to credit bureaus as a credit card. Johnson is banking on this feature to draw "credit-challenged consumers," since most Americans can obtain a debit VISA or MasterCard linked to their bank account at a minimal cost. Fools are born everyday so there will probably be no end to cards created especially for them. If you cannot qualify for a credit card because you have "no credit" or "poor credit," then seek out secured credit cards. Why pay hundreds of dollars in outrageous fees when you can take the same money and have it held in an interest bearing account while enjoying the convenience and credit building aspects of a bank credit card.
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Citigroup reported profits for its North America Cards unit were up 21% for
the fourth quarter and 19% for the full year. While receivables rose 2% last year
to $108.9 billion, Citi's charge volume grew a weak 1%. For the fourth
quarter, charge volume declined slightly from $56.8 billion for 4Q/00 to $56.7 billion
for fourth quarter 2001. Citi is also dealing with significantly higher
charge-offs and delinquency than 2000. Charge-offs hit 5.91% for 4Q/01,
compared to 5.48% in the third quarter, and 4.22% one year ago. Delinquency
(90+ day) was 1.98% for the fourth quarter 2001, compared to 1.82% for 3Q/01,
and 1.46% for 4Q/00. As of Dec 31, Citi had 92.9 million credit card
accounts in North America, excluding Diners Club. Outside of North America, Citigroup
had 15.2 million credit card accounts generating $10.3 billion in sales
volume and $13.6 billion in receivables during the fourth quarter. 
MBNA weathered a tough economic fourth quarter with strong
earnings and solid account growth, in the face of lower than expected
non-interest income and rising delinquency and charge-offs. During the
fourth quarter, MBNA signed up 2.8 million new customers representing 2.4
million new accounts. Delinquency hit 5.09% compared to approximately 4.94%
one year ago, and charge-offs hit 4.86% for 4Q/01 compared to 3.87% for
4Q/00. Card volume for the fourth quarter was up 12.4% over 4Q/00, logging
in at $39,201,482,000. MBNA's net income for the quarter was $524.8 million
compared with $423.8 million for 4Q/00. Total managed loans at Dec 31, were
$97.5 billion, a $4.9 billion increase over the third quarter. MBNA signed
110 new affinity contracts during the quarter and renewed 300 deals. MBNA
also reported that its Web site now serves more than 5.6 million customers
and they have signed up 900,000 new customers via the Internet last year. 
First USA reported a 70% increase in fourth quarter operating income of $326
million, driven by higher net interest income, lower expenses, and the
addition of the Wachovia credit card business last year. The pre-tax return on
outstandings was 3.10% in the fourth quarter, up from 2.64% in the prior
quarter. End-of-period managed loans were $68.2 billion, up $1.2 billion from
4Q/00. First USA opened 1.0 million new accounts during the quarter, a 22%
increase from the year-ago quarter and down 13% from the third quarter. At
Dec 31, 55.6 million cards were issued. The managed charge-off rate increased to
5.59% from 5.41% a year ago, reflecting lower average outstandings on the
legacy First USA portfolio and higher losses, and decreased from 5.89% in the
third quarter, reflecting lower losses. The managed 30-day and 90-day
delinquency rates were 4.46% and 1.93%, respectively, down from 4.51% and
2.02% in the year-ago quarter and up from 4.25% and 1.80% in the third quarter. 
Morgan Stanley reported that its Credit Services/Discover Card division
posted
fourth quarter net income of $193 million, a 31% gain from a year ago.
Discover
card receivables were up a modest 4.6% and credit card charge volume was down
3% from last year. MS says the increase in profits during the quarter ending
November 30th was driven by higher net interest income and lower marketing
and
business development expenses, partially offset by an increase in net
charge-offs. In addition, merchant and cardholder fees increased 12% from a
year ago to $539 million. However, higher cardholder fees were primarily
responsible for the increase. Discover said the decline in transaction volume
was largely the result of lower balance transfers. The charge-off rate was
essentially flat with the prior quarter, but up 128 basis points from a year
ago. The over-90-day delinquency rate was 3.02% compared to 2.42% in fourth
quarter 2000. The decline in credit quality reflects the weakness in the U.S.
economy, a high level of national bankruptcy filings and the adverse impact
of
the seasoning of cardholder accounts. During 4Q/01, Discover opened 995,000
accounts and 161,000 new merchant locations. 
Chase reported its operating earnings for its credit card division rose 33%
in
the fourth quarter and 16% for the full year. Credit card outstandings were
up
12% for the year, ending at $40,811,000,000. On a managed basis, the credit
card net charge-off ratio was 5.48% in the fourth quarter of 2001, compared
to
5.64% for the third quarter of 2001 and 4.86% for the fourth quarter of 2000. 
Capital One posted a 39% leap in profits for the fourth quarter, from $128.3
million one year ago to $177.7 million. Marketing expenses for the fourth
quarter were up 6.8% to $301.2 million, while the cost-per-account dropped
from
$78.09 one year ago to $73.69 for 4Q/01. For the latest quarter, Cap One
added
3.7 million net new accounts, bringing total accounts to 43.8 million. The
company's managed consumer loan balances increased by $6.8 billion in the
fourth quarter to $45.3 billion. The managed net charge-off rate increased to
4.42% for 4Q/01 compared with 3.98% one year ago. The managed delinquency
rate
(30+ days) decreased to 4.95% as of Dec 31, compared with 5.23% for 4Q/00.
The
company's managed net interest margin decreased to 8.68% in the fourth
quarter
from 10.16% for the fourth quarter of 2000. The issuer says the decreased NIM
was primarily due to an increase in the amount of loans at teaser rates,
continued growth of its super-prime segment, and an increase in the company's
liquidity during the quarter. 
After delaying the release of its earnings report, Providian reported a net
fourth quarter loss of $395 million from continuing operations, compared to
an
operating profit of $225 million for 4Q/00. The company also said that
banking
regulators have accepted its new "Capital Plan." Despite the restructuring,
Providian posted a strong fourth quarter as it focused on the middle-market
segment, largely abandoning the sub-prime market. During 4Q/01, the company
added 500,000 net new accounts and added $950 million to total managed credit
card loans. The managed net credit loss rate was 12.70% in the fourth
quarter,
compared to 8.49% one year ago. The 30+ day managed delinquency rate was
8.81%
at year-end 2001, compared to 7.54% at the end of 2000. In light of the loss
trends, Providian beefed up its loan loss reserve by $252 million during the
fourth quarter. Total loan loss reserves now stand at $1.93 billion at
year-end. 
American Express Travel Related Services reported fourth quarter net income
of
$170 million, a 64% decline from 4Q/00. Weak business charge volume and
higher
provisions for losses were the major factors for the decline. However, these
factors were partly offset by the decline in marketing/promotion expenses
and a
lower payroll. Included in the 4Q/01 results are $219 million pre-tax ($140
million after-tax) of restructuring charges. Excluding the restructuring
charge, TRS 4Q/01 net income would have been $310 million, down 34% from last
year. Fourth quarter charge volume was down 5.5% compared to 4Q/00. Card
loans
have also slowed to an 11.5% annual growth rate, compared to 15.5% growth
rate
for 3Q/01. Charge-offs have soared 34% over the past twelve months while
delinquency has increase nearly 18%. Thanks to lower funding costs, the net
interest yield has dropped almost 25% and interest expense was down 35%. 
Bank of America reported an 18.1% increase in credit card receivables during
2001, ending the year with $27.2 billion in managed card loans. Charge-offs
have been relatively stable for the past two quarters, but jumped from 4.32%
for 4Q/00 to 4.90% for 4Q/01. Fourth quarter charge volume was only up 6.1%
over the prior year, a reflection of soft holiday spending. For all of 2001,
BofA's charge volume was up 7.7%. 
Household reported a very small increase in fourth quarter VISA and
MasterCard
receivables from $17,303,700,000 for the third quarter to $17,395,200,000 for
4Q/01. For the full year, Household's bank credit card outstandings were down
1.1%. Meanwhile, HH's private label credit card portfolio was up 15.1% for
the
year, to end at $13,813,900,000. Bank credit card charge-offs dipped slightly
to 6.69% for the fourth quarter compared to 6.75% in the previous quarter.
Delinquency (60+ day) was up significantly from 3.91% in the third quarter to
4.10% for 4Q/01. Charge offs within the private label portfolio were 5.40%
and
delinquency was 5.48%.