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Bolstered by a new federal bankruptcy law designed to make it more difficult for consumers to file for federal bankruptcy protection from creditors, U.S. issuers of Visa and MasterCard credit cards in 2006 experienced a big reduction in charge-off expenses, according to SourceMedia's Cards&Payments' annual Bankcard Profitability Study and Annual Report. This helped bolster bankcard issuers' profits, as the industry posted a collective after-tax return on assets of $18.37 billion, or 2.97% of average outstandings, up 45% from $12.67 billion and 2.09% in 2005.
The Study, which is featured in the May 2007 issue of Cards&Payments, was compiled from annual reports, government agencies, card companies' financial results and interviews with financial analysts and industry consultants. Total revenue among issuers of Visa and MasterCard consumer and commercial credit cards last year reached $114.99 billion, up 5% from $109.98 billion in 2005. However, penalty-fee revenue dropped 27%, to $6.44 billion from $8.87 billion in 2005, as fewer consumers were delinquent on their card payments. Expenses dropped 4% last year, to $86.72 billion from $90.48 billion in 2004. This was driven by a 31% reduction in charge-off expenses, which fell to $24.12 billion from $35.13 billion in 2005. This year, however, promises to be more challenging for the nation's bankcard issuers. "While issuers basked in the benefits of the new bankruptcy law, bankruptcy filings are again on the rise," says Jeffrey Green, Cards&Payments editor-in-chief. "Moreover, mandatory increases in minimum monthly payments on unpaid card balances are helping to reduce growth in interest-generating receivables." Purchase volume on consumer and commercial cards last year reached 1.29 trillion, up 9.3% from $1.18 trillion in 2005. Total charge volume, including cash advances, reached $1.53 trillion, up 8.5% from $1.41 trillion, according to the study. For more information, visit: www.cardforum.com. |
