Feeling Bad About Filing Bankruptcy? Maybe These Numbers Will Help

12 Aug Feeling Bad About Filing Bankruptcy? Maybe These Numbers Will Help

“I owe the money, I want to pay it back,” is a universal sentiment. But consumer lending profits are so high; the banks, not the bankrupts, should be blushing.

The top three credit card banks – Bank of America, Chase and Citibank – hold more than half the market for credit card loans. These banks are owed money in the majority of bankruptcy cases, directly or indirectly. So obviously they are the hardest hit by rising bankruptcy rates, aren’t they?

Would that you or I could be hurt so badly. In its 2006 annual report, Bank of America (which includes MBNA) reported net income from “card services” of $5,640,000,000. That’s over $15 million per day. Although bank accounting is very complex, net income basically means the amount left over after paying everyone who works for the bank, paying depositors, paying taxes, paying for all the advertising, equipment and infrastructure — and after putting aside money for projected losses on things like bankruptcy. I don’t know how much you are paid hourly, or how profitable your company is, but I’m betting it is not $15 million/day profitable.

Perhaps just Bank of America got lucky? Au contraire. JPMorgan Chase reported 2006 net income of $3,206,000,000 from “card services.” That’s almost $9 million per day. Citigroup, the parent company of Citibank, does not break its credit card income out so easily but it does report 2006 Global Consumer net income of $12,056,000,000 so it is safe to guess Citibank will not be brought to its knees by consumer bankruptcies, anytime soon.

It is often claimed that bankruptcy filings force lenders to pass those losses onto their other customers, so “we all pay” when someone else does not. And reform lobbyists said bankruptcy was like a $400 tax on all consumers. In a very indirect sense it may be true. But the reality is that the bankruptcy losses are only a component in the calculation designed to yield an enormous net profit each year for the large consumer lenders. It is not the loss which is passed on to the rest of us, but the cost of achieving the target profits.

Don’t get me wrong. I’m not criticizing these banks for turning a profit. Hardly! I admire companies that can consistently turn a profit — and most businesses would be green with envy at the profit margins they achieve! No one forced consumers to borrow on credit cards. And these numbers don’t identify how profitable or unprofitable any particular account is, they’re simply the gross numbers for companies that have billions in loans outstanding. Since credit cards are the highest risk loan they could make, they absolutely deserve to turn a higher profit for taking such risks in lending to us.

And these large banks are often the more reasonable lenders when compared, for example, to many others like subprime mortgage servicers and payday loan companies. Indeed, Citibank announced in March it was ending the use of “universal default” clauses in their card agreements which will save many consumers money.

But for most folks filing bankruptcy, their lifetime earnings wouldn’t match a day’s earnings for the bank (unless they hit the lottery). There are greater worries for such banks than your bankruptcy. Trust me, they’ll be fine.

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I have been a bankruptcy attorney since 1989. Our firm represents consumers filing bankruptcy almost exclusively, although I have represented bankruptcy trustees as well as creditors. For 2017-2019 I served on the American Bankruptcy Institute's Commission on Consumer Bankruptcy. Our Report recommended numerous changes to improve bankruptcy law to make it serve everyone in the process more effectively. If you live in Eastern Missouri, visit our website, send an e-mail or give us a call (314) 781-3400. Our website: STLBankruptcy.com
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