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Accounts Receivable and Loans
9 Months Ended
Sep. 30, 2011
Sep. 30, 2010
Loans Notes Trade And Other Receivables Disclosure [Abstract]  
Accounts Receivable and Loans

4. Accounts Receivable and Loans

The Company's charge and lending payment card products result in the generation of cardmember receivables (from charge payment products) and cardmember loans (from lending payment products) described below.

 

Cardmember and Other Receivables

Cardmember receivables, representing amounts due from charge payment product customers, are recorded at the time a cardmember enters into a point-of-sale transaction with a merchant. Each charge card transaction is authorized based on its likely economics reflecting a cardmember's most recent credit information and spend patterns. Global limits are established to limit the maximum exposure for the Company from high risk and some high spend charge cardmembers, and accounts of high risk, out-of-pattern charge cardmembers can be monitored even if they are current. Charge card customers generally must pay the full amount billed each month. Cardmember receivable balances are presented on the Consolidated Balance Sheets net of reserves for losses (refer to Note 5), and include principal and any related accrued fees. Accounts receivable as of September 30, 2011 and December 31, 2010 were as follows:

(Millions) 2011 2010
 U.S. Card Services(a) $18,957 $19,155
 International Card Services  6,746  6,673
 Global Commercial Services(b)  13,866  11,259
 Global Network & Merchant Services(c)  190  179
Cardmember receivables, gross(d)  39,759  37,266
Less: Cardmember receivables reserve for losses  388  386
Cardmember receivables, net $39,371 $36,880
Other receivables, net(e) $3,517 $3,554
          

(a)       Includes $6.6 billion and $7.7 billion of gross cardmember receivables available to settle obligations of a consolidated VIE as of September 30, 2011 and December 31, 2010, respectively.

(b)       Includes $0.5 billion of gross cardmember receivables available to settle obligations of a consolidated VIE as of both September 30, 2011 and December 31, 2010.

(c)       Includes receivables primarily related to the Company's International Currency Card portfolios.

(d)       Includes approximately $12.6 billion and $11.7 billion of cardmember receivables outside the United States as of September 30, 2011 and December 31, 2010, respectively.

(e)       Other receivables primarily represent amounts for tax-related receivables, amounts due from the Company's travel customers and suppliers, purchased joint venture receivables, amounts due from third-party issuing partners, amounts due from certain merchants for billed discount revenue, accrued interest on investments and other receivables due to the Company in the ordinary course of business.

 

Cardmember and Other Loans

Cardmember loans, representing amounts due from lending payment product customers, are recorded at the time a cardmember enters into a point-of-sale transaction with a merchant or when a charge card customer enters into an extended payment arrangement. The Company's lending portfolios primarily include revolving loans to cardmembers obtained through either their credit card accounts or the lending on charge feature of their charge card accounts. These loans have a range of terms such as credit limits, interest rates, fees and payment structures, which can be adjusted over time based on new information about cardmembers and in accordance with applicable regulations and the respective product's terms and conditions. Cardmembers holding revolving loans are typically required to make monthly payments greater than or equal to certain pre-established amounts. The amounts that cardmembers choose to revolve are subject to finance charges. When cardmembers fall behind their required payments, their accounts are monitored.

 

Cardmember loans are presented on the Consolidated Balance Sheets net of reserves for losses and unamortized net card fees and include accrued interest and fees receivable. The Company's policy generally is to cease accruing for interest receivable on a cardmember loan at the time the account is written off. The Company establishes reserves for interest that the Company believes will not be collected.

 

Loans as of September 30, 2011 and December 31, 2010 consisted of:

(Millions)  2011  2010
 U.S. Card Services(a) $49,886 $51,565
 International Card Services  8,293  9,255
 Global Commercial Services  28  30
Cardmember loans, gross(b)  58,207  60,850
Less: Cardmember loans reserve for losses  2,139  3,646
Cardmember loans, net $56,068 $57,204
Other loans, net(c) $359 $412

(a)       Includes approximately $31.6 billion and $34.7 billion of gross cardmember loans available to settle obligations of a consolidated VIE as of September 30, 2011 and December 31, 2010, respectively.

(b)       Cardmember loan balance includes unamortized net card fees of $138 million and $134 million as of September 30, 2011 and December 31, 2010, respectively.

(c)       Other loans primarily represent small business installment loans and a store card portfolio whose billed business is not processed on the Company's network.

Cardmember Loans and Cardmember Receivables Aging

Generally, a cardmember account is considered past due if payment is not received within 30 days after the billing statement date. The following table represents the aging of cardmember loans and receivables as of September 30, 2011 and December 31, 2010:

      30-59  60-89  90+   
      Days  Days  Days   
      Past  Past  Past   
2011(Millions)  Current  Due  Due  Due  Total
Cardmember Loans:               
U.S. Card Services $ 49,146 $ 230 $ 161 $ 349 $ 49,886
International Card Services   8,134   51   35   73   8,293
Cardmember Receivables:               
U.S. Card Services $ 18,575 $ 147 $ 75 $ 160 $ 18,957
International Card Services(a)  (b)  (b)  (b)   63   6,746
Global Commercial Services(a)  (b)  (b)  (b)   98   13,866
                
2010(Millions)               
Cardmember Loans:               
U.S. Card Services $ 50,508 $282 $226 $549 $ 51,565
International Card Services   9,044  66  48  97   9,255
Cardmember Receivables:               
U.S. Card Services $ 18,864 $ 104 $ 55 $ 132 $ 19,155
International Card Services(a)  (b)  (b)  (b)   64   6,673
Global Commercial Services(a)  (b)  (b)  (b)   96   11,259

  • For cardmember receivables in International Card Services (ICS) and Global Commercial Services (GCS), delinquency data is tracked based on days past billing status rather than days past due. A cardmember account is considered 90 days past billing if payment has not been received within 90 days of the cardmember's billing statement date. In addition, if the Company initiates collection procedures on an account prior to the account becoming 90 days past billing the associated cardmember receivable balance is considered as 90 days past billing. These amounts are shown above as 90+ Days Past Due for presentation purposes.
  • Historically, data for periods prior to 90 days past billing are not available due to system constraints. Therefore, it has not been utilized for risk management purposes. The balances that are current to 89 days past due can be derived as the difference between the Total and the 90+ Days Past Due balances.

Credit Quality Indicators for Loans and Receivables

The following tables present the key credit quality indicators as of or for the nine months ended September 30:

  2011 2010 
  Net Write-Off Rate   Net Write-Off Rate   
      30 Days     30 Days 
    Principal, Past Due   Principal, Past Due 
  Principal Interest, & as a % of Principal Interest, &  as a % of 
  Only (a)Fees (a)Total Only (a)Fees (a)Total 
U.S. Card Services ―              
Cardmember Loans 3.2%3.5%1.5%6.2%6.8%2.5%
International Card Services ―             
Cardmember Loans 2.9%3.5%1.9%4.9%5.8%2.8%
U.S. Card Services ―              
Cardmember Receivables 1.7%1.8%2.0%1.7%1.8%1.7%
              
      2011 2010 
      Net Loss   Net Loss   
      Ratio as 90 Days Ratio as 90 Days 
      a % of Past Billing a % of Past Billing 
      Charge as a % of Charge as a % of 
      Volume Receivables Volume (b)Receivables 
International Card Services ― Cardmember Receivables 0.15%0.9%0.27%1.0%
Global Commercial Services ― Cardmember Receivables0.06%0.7%0.13%0.8%

(a) The Company presents a net write-off rate based on principal losses only (i.e., excluding interest and/or fees) to be consistent with industry convention. In addition, because the Company's practice is to include uncollectible interest and/or fees as part of its total provision for losses, a net write-off rate including principal, interest and/or fees is also presented.

(b) In the first quarter of 2010, the Company modified its reporting in the ICS and GCS segments to write-off past due cardmember receivables when 180 days past due or earlier, versus its prior methodology of writing them off when 360 days past billing or earlier. This change is consistent with bank regulatory guidance and the write-off methodology adopted for the cardmember receivables portfolio in the U.S. Card Services (USCS) segment in the fourth quarter of 2008. This change resulted in approximately $60 million and $48 million of net write-offs for ICS and GCS, respectively, being included in the first quarter of 2010, which increased the net loss ratios and decreased the 90 days past billing metrics for these segments, but did not have a substantial impact on provisions for losses.

Refer to Note 5 for other factors, including external environmental factors, that management considers as part of its evaluation process for reserves for losses.

 

Impaired Loans and Receivables

Impaired loans and receivables are defined by GAAP as individual larger balance or homogeneous pools of smaller balance restructured loans and receivables for which it is probable that the lender will be unable to collect all amounts due according to the original contractual terms of the loan and receivable agreement. The Company considers impaired loans and receivables to include: (i) loans over 90 days past due still accruing interest, (ii) non-accrual loans, and (iii) loans and receivables modified as troubled debt restructurings (TDRs).

 

The Company may modify, through various company sponsored programs, cardmember loans and receivables in instances where the cardmember is experiencing financial difficulty to minimize losses to the Company while providing cardmembers with temporary or permanent financial relief. The Company has classified cardmember loans and receivables in these modification programs as TDRs. Such modifications to the loans and receivables may include (i) reducing the interest rate (as low as zero percent, in which case the loan is characterized as non-accrual in our TDR disclosures), (ii) reducing the outstanding balance (in the event of a settlement), (iii) suspending delinquency fees until the cardmember exits the TDR program, and (iv) placing the cardmember on a fixed payment plan not exceeding 60 months. Upon entering the modification program, the cardmember's ability to make future purchases is either cancelled, or in certain cases suspended until the cardmember successfully exits the TDR program. In accordance with the modification agreement with the cardmember, loans with modified terms will revert back to their original contractual terms (including their contractual interest rate) when they exit the TDR program, either (i) when all payments have been made in accordance with the modification agreement or (ii) in the event that a payment is not made in accordance with the modification agreement and the cardmember defaults out of the program. In either case, in accordance with its normal policy, the Company establishes a reserve for cardmember interest charges that it believes will not be collected.

 

The performance of a TDR is closely monitored to understand its impact on the Company's reserve for losses. Though the ultimate success of these modification programs remains uncertain, the Company believes the programs improve the cumulative loss performance of such loans and receivables. Reserves for cardmember loans and receivables modified as TDRs are determined by the difference between the cash flows expected to be received from the cardmember, taking into consideration the probability of subsequent defaults, discounted at the original effective interest rates, and the carrying value of the cardmember loan or receivable balance. The Company determines the original effective interest rate as the interest rate in effect prior to the imposition of any penalty rate. All changes in the impairment measurement, including the component due to the passage of time, are included in the provision for losses within the Consolidated Statements of Income.

 

The following tables provide additional information with respect to the Company's impaired cardmember loans and receivables as of September 30, 2011 and December 31, 2010:

   Loans over            
   90 Days     Loans &  Total   
   Past Due  Non-  Receivables  Impaired  Unpaid     
(Millions) & Accruing  Accrual  Modified  Loans &  Principal   Allowance 
2011  Interest (a) Loans (b) as a TDR (c)(d) Receivables  Balance (e)  for TDRs (f)
U.S. Card Services ― Cardmember Loans $ 65 $ 420 $ 869 $ 1,354 $ 1,303  $ 199 
International Card Services ― Cardmember Loans   71   6   9   86   84    4 
U.S. Card Services ― Cardmember Receivables   ―   ―   159   159   158    94 
Total(g) $ 136 $ 426 $ 1,037 $ 1,599 $ 1,545  $ 297 
                     
   Loans over            
   90 Days     Loans &  Total   
   Past Due  Non-  Receivables  Impaired  Unpaid     
(Millions) & Accruing  Accrual  Modified  Loans &  Principal   Allowance 
2010  Interest (a) Loans (b) as a TDR (c) Receivables  Balance (e) for TDRs (f)
U.S. Card Services ― Cardmember Loans $ 90 $ 628 $ 1,076 $ 1,794 $ 1,704  $ 274 
International Card Services ― Cardmember Loans   95   8   11   114   112    5 
U.S. Card Services ― Cardmember Receivables   ―   ―   114   114   109    63 
Total(g) $ 185 $ 636 $ 1,201 $ 2,022 $ 1,925  $ 342 

(a)       The Company's policy is generally to accrue interest through the date of charge-off (at 180 days past due). The Company establishes reserves for interest that the Company believes will not be collected.

(b)       Non-accrual loans not in modification programs include certain cardmember loans placed with outside collection agencies for which the Company has ceased accruing interest. The Company's policy is not to resume the accrual of interest on these loans. Payments received are applied against the recorded loan balance. Interest income is recognized on a cash basis for any payments received after the loan balance has been paid in full.

(c)       The total loans and receivables modified as a TDR include $517 million and $655 million that are non-accrual and $5 million and $7 million that are past due 90 days and still accruing interest as of September 30, 2011 and December 31, 2010, respectively. These amounts are excluded from the previous two columns.

(d)       The Company reassessed all cardmember loans and receivables modifications that occurred on or after January 1, 2011, to determine whether any such modifications met the definition of a TDR under new GAAP effective July 1, 2011. As a result, beginning the third quarter of 2011 the Company now includes its short-term settlement programs in TDRs. The Company's settlement programs have terms of three months or less and are contingent upon the cardmember fulfilling the program's payment terms, which if satisfied results in the write-off of the cardmember's remaining outstanding balance. The cardmember loans and receivables modified through these settlement programs continue to be evaluated individually for impairment when measuring reserves for losses. As of September 30, 2011, the outstanding balance of cardmember loans and receivables modified through settlement programs was $5.8 million and the associated reserves for losses was $3.7 million.

(e) Unpaid principal balance consists of cardmember charges billed and excludes other amounts charged directly by the Company such as interest and fees.

(f)       Represents the reserve for losses for TDRs, which are evaluated separately for impairment. The Company records a reserve for losses for all impaired loans. Refer to Cardmember Loans Evaluated Separately and Collectively for Impairment in Note 5 for further discussion of the reserve for losses on loans over 90 days past due and accruing interest and non-accrual loans, which are evaluated collectively for impairment.

(g)       These disclosures are not significant for cardmember receivables in ICS and GCS.

 

  Three Months Ended Nine Months Ended
  September 30, 2011 September 30, 2011
     Aggregated  Aggregated    Aggregated  Aggregated
     Pre-  Post-    Pre-  Post-
    Modification Modification   Modification Modification
  Number of Outstanding Outstanding Number of Outstanding Outstanding
(Accounts in thousands, Dollars in millions) Accounts  Balances(a)(b)  Balances(a)(b) Accounts  Balances(a)(b)  Balances(a)(b)
Troubled Debt Restructurings:                
U.S. Card Services ― Cardmember Loans 35 $269 $259 116 $875 $839
U.S. Card Services ― Cardmember Receivables 14  108  105 36  292  281
Total(c) 49 $377 $364 152 $1,167 $1,120

  • The outstanding balance includes principal and accrued interest.
  • The difference between the pre- and post-modification outstanding balances is solely attributable to amounts charged off for cardmember loans and receivables being resolved through the Company's short-term settlement programs.
  • These disclosures are not significant for cardmember loans modifications in ICS.

As described previously, the Company's cardmember loans and receivables modification programs may include (i) reducing the interest rate, (ii) reducing the outstanding balance, (iii) suspending delinquency fees and (iv) placing the cardmember on a fixed payment plan not exceeding 60 months. Upon entering the modification program, the cardmember's ability to make future purchases is either cancelled, or in certain cases suspended until the cardmember successfully exits the TDR program.

The Company has evaluated the primary financial effects of the impact of the changes to an account upon modification as follows:

  • Interest Rate Reduction: For the three and nine months ended September 30, 2011, the average interest rate reduction was 12% for USCS cardmember loans, resulting in an estimated reduction in interest income of approximately $2 million and $17 million, respectively. The Company does not offer interest rate reduction programs for USCS cardmember receivables as these receivables are non-interest bearing.
  • Outstanding Balance Reduction: The table above presents the financial effects on the Company as a result of reducing the outstanding balance for Short-Term Settlement Programs. The difference between the pre- and post-modification outstanding balances represents the amount that either has been written-off or will be written-off upon successful completion of the settlement program.
  • Payment Term Extension: For both the three and nine months ended September 30, 2011, the average payment term extension was approximately 15 months for USCS cardmember receivables. For USCS cardmember loans, there have been no extension of payment terms.

The following table provides information with respect to the cardmember loans and receivables modified as TDRs on which there was a default within 12 months of modification during the periods presented. A cardmember will default from a modification program after between one and up to three consecutive missed payments, depending on the terms of the modification program.

  Three Months Ended Nine Months Ended
  September 30, 2011 September 30, 2011
      Aggregated     Aggregated
     Outstanding     Outstanding
   Number of  Balances  Number of  Balances
(Accounts in thousands, Dollars in millions)  Accounts Upon Default(a)  Accounts Upon Default(a)
Troubled Debt Restructurings That Subsequently Defaulted:            
U.S. Card Services ― Cardmember Loans  9 $65  36 $271
U.S. Card Services ― Cardmember Receivables  1  7  5  32
Total(b)  10 $72  41 $303

(a) The outstanding balance includes principal and accrued interest.

(b) During the periods presented, the ICS cardmember loan modifications on which there was a default from the modification program within 12 months of modification were not significant.

  Three Months Ended September 30, 2011 Nine Months Ended September 30, 2011  
   Interest     Interest     
   Income  Average  Income  Average  
(Millions)  Recognized  Balance  Recognized  Balance  
U.S. Card Services ― Cardmember Loans $ 16 $ 1,390 $ 51 $ 1,541  
International Card Services ― Cardmember Loans   5   92   22   102  
U.S. Card Services ― Cardmember Receivables   ―   149   ―   138  
Total(a) $ 21 $ 1,631 $ 73 $ 1,781  
               
  Three Months Ended September 30, 2010 Nine Months Ended September 30, 2010  
   Interest     Interest     
   Income  Average  Income  Average  
(Millions)  Recognized  Balance  Recognized  Balance  
U.S. Card Services ― Cardmember Loans $23 $ 2,090 $ 78 $ 2,370  
International Card Services ― Cardmember Loans  7   134   32   149  
U.S. Card Services ― Cardmember Receivables   ―   109   ―   109  
Total(a) $ 30 $ 2,333 $ 110 $ 2,628