Credit-Card Debt: The Next Possible Implosion

Nonetheless, lenders are happy to oblige, with some caveats, in an effort to make up for miserable first-quarter results. The banking industry has posted massive losses from mortgages and other housing investments as the market began to collapse.

The downturn was due in large part to risky loans issued to consumers with weak credit profiles, known as "subprime" or "Alt-A" borrowers. Now that those customers -- as well as some with better financial measures -- are facing delinquencies, defaults and foreclosures, lenders of all stripes have tightened their standards.

"There are many banks that see opportunities in the consumer-lending space because they feel they have the capital and resources to take some market share," says James Chessen, chief economist at the American Bankers Association, an industry trade group. But, he adds: "I guarantee any borrower that's had late payments on their mortgages will not see a lot of offers for any other type of consumer-loan product."

Credit-card debt, which is unsecured, is riskier for banks to provide and requires more capital reserves than asset-backed loans. But the return on equity for credit-card lending far exceeds that of mortgages or other loans, because of higher interest rates and other fees. For instance, Capital One's(COF Quote - Cramer on COF - Stock Picks) business that handles credit cards had a 50% ROE last year, compared with 6.5% for its mortgage business and 10% for the company overall, according to TheStreet.com Senior Banking Analyst Philip van Doorn. The bank lifted pricing and fees and modified terms of its card agreements last year.

"It's an uglier business," says van Doorn, "but there's oodles of money to be made."

« Previous Page

1 2 3 4

Next Page »