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Bank Plus, S & L Unit Cut Ties With 2 Credit Card Marketers

Lending: Higher- than-expected delinquency rate of 16.9% is cited.

November 03, 1998|LIZ PULLIAM | TIMES STAFF WRITER

Bank Plus Corp. and its savings and loan subsidiary, Fidelity Federal Bank, abruptly severed relationships with two credit card marketers after card delinquencies spiked to 16.9%, the companies said Monday.

The delinquency rate is far worse than the 7% to 8% of loan portfolio at other high-risk credit card lenders and even worse than the 11.9% rate Los Angeles-based Bank Plus and Glendale-based Fidelity Federal reported in September.

"They're having a meltdown in their portfolio," said one analyst who follows the sub-prime lending industry. Sub-prime lenders specialize in lending to people with troubled credit histories, ranging from those who have been 30 days late on a mortgage payment to people who are emerging from bankruptcy.

A Bank Plus spokesman said the company did not know why delinquency rates were so much higher than expected.

The marketers, MMG Direct Inc. and American Direct Credit, offered Fidelity credit cards to people with troubled credit histories and shared the profits or losses with the thrift. MMG Direct, which provided about 53% of the companies' $315 million in credit card balances, marketed mostly to Baptist church members; American Direct, which provided 40% of the balances, offered credit cards as a way to finance door-to-door sales of vacuum cleaners, water purifiers and other products.

Bank Plus said in September it was getting out of most of its sub-prime credit card business because of higher-than-expected losses but would continue to honor its contracts with the marketers.

On Monday, however, Bank Plus said it had ended its relationship with MMG after delinquencies--loans more than 30 days overdue--in that marketers' portfolio rose to 19.5% as of Sept. 30.

Bank Plus said it would end its relationship with American Direct as of Dec. 31. Delinquency rates averaged 15.7% with the second marketer's portfolio. Bank Plus stock fell 69 cents Monday to close at $3.38 on Nasdaq.

Investors sued Bank Plus last week, charging that the company was hiding problems in its sub-prime credit card program and inflating its earnings by counting uncollectable credit card fee income.

Bank Plus said the delinquencies would hurt both earnings and the thrift's levels of capital, the financial cushion used to guard against losses, but that the thrift would remain adequately capitalized.

Fidelity Federal has assets of $4.3 billion and 38 branches, most of them in Los Angeles and Orange counties.

Bank Plus' troubles come as credit card issuers nationally are enjoying strong profits and a leveling-off of delinquency-related problems. Providian Financial Corp., a leading credit card issuer, said third-quarter earnings rose 70% and its delinquency rate was about 7.75%. Nationally, all credit card issuers are experiencing delinquency rates of about 5%.

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