A large number of consumers who had previously been locked out of the lending system entirely because they allowed their credit card debt to become so delinquent that it was written off are now receiving preapproved offers for new accounts, according to a report from Dow Jones Newswires. Major lenders like Capital One, Bank of America and Wells Fargo are now mailing first-time defaulters offers for new accounts in hopes of revitalizing their sagging profit margins.
Similarly, Discover is looking into whether this is a good idea by conducting research into how the current creditworthiness of these past defaulters, the report said. In recent months, the company has made an effort to increase the number of employees whose job it is to evaluate credit card applications. By the end of 2011, it hopes to have 400. As recently as two years ago, it had just eight.
"The universe of people that are potential candidates for credit isn't as big as it was before the recession," Jim Panzarino, chief credit risk officer at Discover Financial Services, told the news agency. "So what do you do? We intend to deploy strategies to address that."
Many consumers did not default because they chose to do so, but rather because they faced serious financial difficulties which rendered them unable to pay down their credit card debt altogether, the report said. By differentiating between strategic defaulters – who walked away from loans because their home value slipped to the point that they owed more on it than it was worth – and those who simply faced hardships such as prolonged unemployment, the company believes it may find some reliable borrowers.
One out of every four credit card offers is now directed at consumers whose credit score would categorize them as subprime, the report said. In general lenders have increased the offers they send out about three-fold in the last year.
However, the large amount of consumers who have defaulted on their credit card debt and were no longer able to get a line of credit also saved lenders tens of millions of dollars on their losses. Rates of both delinquency and charge offs have declined steeply in recent months.