Dubious subprime credit company, CompuCredit, in financial trouble

The bad news for its employees came on Jan. 28: CompuCredit announced that it was closing several call and collection centers around the country in order to cut costs.  Due to the recession, Atlanta-based CompuCredit, which specializes in credit card and car loans for consumers with bad credit, decided to layoff about 740 employees.  However, it will continue to operate centers in Nevada, Florida, and Minnesota. 

In addition to laying off several employees, CompuCredit released on the same day a press release announcing the following: “CompuCredit Holdings Corporation Announces ‘Modified Dutch Auction’ Tender Offer to Purchase up to $160,000,000 Aggregate Principal Amount of Its Outstanding 3.625% Convertible Senior Notes Due 2025 and 5.875% Convertible Senior Notes Due 2035”.  That has to be the most convoluted title that I have ever read in my life.  You have to have a finance degree to even get an idea of what it means. In a nutshell and explained at the most rudimentary level, CompuCredit is buying back some of its long-term debt at a discounted, auctioned off rate from its debt holders because its financial welfare and future are shaky at best. In short, CompuCredit, like some of its subprime customers, is experiencing financial straits.

Normally, this news would not be material for this blog.  (I would much rather write about the total demise of the company.)  But CompuCredit is of special importance because it was investigated and censured by the FTC (Federal Trade Commission) in part for reducing customers’ credit limits based on where they shop.  As a result, CompuCredit settled for $116 million and agreed to pay a $2.4 million penalty to the U.S. treasury in December 2008.  Similarly, in January 2009, American Express engaged in and admitted to the same insidious practices in 2009. However, it has not had to face any penalties.  In fact, American Express’ actions are what prompted the creation of this blog.  Even with the tremendous media attention given to American Express’ obvious abuses, the company has managed to escape public and political outrage relatively unscathed. 

Finally, while I am an advocate of increased regulation of financial institutions, I must say that the troubles of CompuCredit give me increased faith in the free market’s ability to impose natural selection.  I just hope that this case of corporate Darwinism extends its gloomy fate to American Express and others who have yet to reap the full consequences of their cupidity and indiscretion.  

Comments

[bad credit car loans]

It is not nearly impossible to find companies offering bad credit auto loans. What is challenging is the payment has to get made on these financing options. For the reason that the interest levels billed by poor credit auto providers usually are higher than the common rate. If you possibly could make a larger deposit or purchase a less expensive car then that will lower your payments.

[Kevin D. Johnson]

Jefferey, I couldn't agree with you more. I think they are taking notice. We just have to hold them accountable for maintaining high ethical standards.

[Jeffrey Johnson]

Karma rewarding companies. Do good to your customers and employees and get rewarded. Do bad to your customers and employees and get punished. Banks and credit card companies hope you taking notice.