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Accounts Receivable and Loans
 9 Months Ended
Sep. 30, 2013
Loans Notes Trade And Other Receivables Disclosure [Abstract]  
Accounts Receivable and Loans

3. Accounts Receivable and Loans

As described below, the Company's charge and lending payment card products result in the generation of Card Member receivables and Card Member loans, respectively.

 

Card Member and Other Receivables

Card Member receivables, representing amounts due from charge card product customers, are recorded at the time a Card Member enters into a point-of-sale transaction with a merchant. Each charge card transaction is authorized based on its likely economics reflecting a Card Member's most recent credit information and spend patterns. Additionally, global spend limits are established to limit the maximum exposure for the Company.

 

Charge card customers generally must pay the full amount billed each month. Card Member receivable balances are presented on the Consolidated Balance Sheets net of reserves for losses (refer to Note 4), and include principal and any related accrued fees.

 

Accounts receivable as of September 30, 2013 and December 31, 2012 consisted of:

(Millions) 2013 2012
U.S. Card Services(a) $20,258 $21,124
International Card Services  7,181  7,778
Global Commercial Services(b)  15,853  13,671
Global Network & Merchant Services(c)  172  193
Card Member receivables(d)  43,464  42,766
Less: Reserve for losses  396  428
Card Member receivables, net $43,068 $42,338
Other receivables, net(e) $3,429 $3,576

  • Includes $6.4 billion and $7.5 billion of gross Card Member receivables available to settle obligations of consolidated VIEs as of September 30, 2013 and December 31, 2012, respectively.
  • Includes $476 million of gross Card Member receivables available to settle obligations of a consolidated VIE as of December 31, 2012. Also includes $857 million and $913 million due from airlines, of which Delta Air Lines (Delta) comprises $600 million and $676 million as of September 30, 2013 and December 31, 2012, respectively.
  • Includes receivables primarily related to the Company's International Currency Card portfolios.
  • Includes approximately $13.7 billion of Card Member receivables outside the United States for both September 30, 2013 and December 31, 2012.
  • Other receivables primarily represent amounts related to (i) purchased joint venture receivables, (ii) certain merchants for billed discount revenue, and (iii) Global Network Services (GNS) partner banks for items such as royalty and franchise fees. Other receivables are presented net of reserves for losses of $77 million and $86 million as of September 30, 2013 and December 31, 2012, respectively.

 

Card Member and Other Loans

Card Member loans, representing amounts due from lending card product customers, are recorded at the time a Card Member enters into a point-of-sale transaction with a merchant, as well as amounts due from charge card product customers when a Card Member enters into an extended payment arrangement with the Company. The Company's lending portfolios primarily include revolving loans to Card Members 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 revised over time based on new information about Card Members and in accordance with applicable regulations and the respective product's terms and conditions. Card Members holding revolving loans are typically required to make monthly payments based on pre-established amounts. The amounts that Card Members choose to revolve are subject to finance charges.

 

Card Member loans are presented on the Consolidated Balance Sheets net of reserves for losses (refer to Note 4), and include principal, accrued interest and fees receivable. The Company's policy generally is to cease accruing interest on a Card Member loan at the time the account is written off, and establish reserves for interest that the Company believes will not be collected.

 

Loans as of September 30, 2013 and December 31, 2012 consisted of:

(Millions)  2013  2012
U.S. Card Services(a) $54,481 $55,953
International Card Services  8,445  9,236
Global Commercial Services  44  40
Card Member loans  62,970  65,229
Less: Reserve for losses  1,281  1,471
Card Member loans, net $61,689 $63,758
Other loans, net(b) $526 $551

  • Includes approximately $29.5 billion and $32.7 billion of gross Card Member loans available to settle obligations of consolidated VIEs as of September 30, 2013 and December 31, 2012, respectively.
  • Other loans primarily represent loans to merchants and a store card loan portfolio whose billed business is not processed on the Company's network. Other loans are presented net of reserves for losses of $16 million and $20 million as of September 30, 2013 and December 31, 2012, respectively.

 

Card Member Loans and Card Member Receivables Aging

Generally, a Card Member 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 Card Member loans and receivables as of September 30, 2013 and December 31, 2012:

       30-59  60-89  90+   
       Days  Days  Days   
       Past  Past  Past   
2013 (Millions)  Current  Due  Due  Due  Total
Card Member Loans:                
U.S. Card Services  $53,892 $184 $127 $278 $54,481
International Card Services   8,318  41  28  58  8,445
Card Member Receivables:                
U.S. Card Services  $19,915 $122 $65 $156 $20,258
International Card Services(a)   (b)  (b)  (b)  80  7,181
Global Commercial Services(a)   (b)  (b)  (b)  120  15,853
                
      30-59  60-89  90+   
      Days  Days  Days   
      Past  Past  Past   
2012 (Millions)  Current  Due  Due  Due  Total
Card Member Loans:                
U.S. Card Services  $55,281 $200 $147 $325 $55,953
International Card Services   9,099  47  30  60  9,236
Card Member Receivables:                
U.S. Card Services  $20,748 $116 $76 $184 $21,124
International Card Services(a)   (b)  (b)  (b)  74  7,778
Global Commercial Services(a)   (b)  (b)  (b)  112  13,671

  • For Card Member 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 Card Member account is considered 90 days past billing if payment has not been received within 90 days of the Card Member'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 Card Member receivable balance is considered as 90 days past billing. These amounts are shown above as 90+ Days Past Due for presentation purposes.
  • Data for periods prior to 90 days past billing are not available due to financial reporting system constraints. Therefore, it has not been relied upon 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 Card Member Loans and Receivables

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

  2013 2012 
  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 
Card Member Loans:             
U.S. Card Services 1.9%2.1%1.1%2.2%2.4%1.3%
International Card Services 1.9%2.3%1.5%1.9%2.5%1.6%
Card Member Receivables:             
U.S. Card Services 1.8%1.9%1.7%2.0%2.1%1.8%
              
      2013 2012 
      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 Receivables 
Card Member Receivables:         
International Card Services 0.20%1.1%0.16%0.9%
Global Commercial Services0.07%0.8%0.07%0.7%

  • 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.

 

Refer to Note 4 for additional indicators, including external environmental qualitative factors, management considers in its monthly evaluation process for reserves for losses.

 

Impaired Card Member 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 Company will be unable to collect all amounts due according to the original contractual terms of the Card Member 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, Card Member loans and receivables in instances where the Card Member is experiencing financial difficulty to minimize losses while providing Card Members with temporary or permanent financial relief. The Company has classified Card Member 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 the Company's TDR disclosures), (ii) reducing the outstanding balance (in the event of a settlement), (iii) suspending delinquency fees until the Card Member exits the modification program and (iv) placing the Card Member on a fixed payment plan not to exceed 60 months. Upon entering the modification program, the Card Member's ability to make future purchases is either cancelled or in certain cases suspended until the Card Member successfully exits the modification program. In accordance with the modification agreement with the Card Member, loans revert back to the original contractual terms (including the contractual interest rate) when the Card Member exits the modification program, which is either (i) when all payments have been made in accordance with the modification agreement or (ii) when the Card Member defaults out of the modification program. In either case, the Company establishes a reserve for Card Member interest charges and fees considered to be uncollectible. The performance of a loan or a receivable modified as a TDR is closely monitored to understand its impact on the Company's reserve for losses. Though the ultimate success of modification programs remains uncertain, the Company believes the programs improve the cumulative loss performance of such loans and receivables.

 

Reserves for Card Member loans and receivables modified as TDRs are determined as the difference between the cash flows expected to be received from the Card Member (taking into consideration the probability of subsequent defaults), discounted at the original effective interest rates, and the carrying value of the Card Member 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 interest rate. All changes in the impairment measurement are included in the provision for losses in the Consolidated Statements of Income.

 

The following table provides additional information with respect to the Company's impaired Card Member loans, which are not significant for GCS, and Card Member receivables, which are not significant for ICS and GCS, as of September 30, 2013 and December 31, 2012:

    Loans over           
    90 Days     Loans &  Total  
    Past Due  Non-  Receivables  Impaired  Unpaid   
   & Accruing  Accrual  Modified  Loans &  Principal  Allowance
2013 (Millions)  Interest (a) Loans (b) as a TDR (c) Receivables  Balance (d) for TDRs(e)
Card Member Loans:                   
U.S. Card Services  $ 125 $ 284 $ 397 $ 806 $ 764 $ 86
International Card Services    57   4   4   65   64   ―
Card Member Receivables:                   
U.S. Card Services    ―   ―   55   55   51   39
Total  $ 182 $ 288 $ 456 $ 926 $ 879 $ 125
                    
    Loans over           
    90 Days     Loans &  Total  
    Past Due  Non-  Receivables  Impaired  Unpaid   
   & Accruing  Accrual  Modified  Loans &  Principal  Allowance
2012 (Millions)  Interest (a) Loans (b) as a TDR (c) Receivables  Balance (d)for TDRs(e)
Card Member Loans:                   
U.S. Card Services  $ 73 $ 426 $ 627 $ 1,126 $ 1,073 $ 152
International Card Services    59   5   6   70   69   1
Card Member Receivables:                   
U.S. Card Services    ―   ―   117   117   111   91
Total  $ 132 $ 431 $ 750 $ 1,313 $ 1,253 $ 244

  • The Company's policy is generally to accrue interest through the date of write-off (at 180 days past due). The Company establishes reserves for interest that the Company believes will not be collected. Excludes loans modified as a TDR.
  • Non-accrual loans not in modification programs include certain Card Member loans placed with outside collection agencies for which the Company has ceased accruing interest. Effective September 1, 2013 the Company began accruing interest on accounts placed with outside agencies.
  • Total loans and receivables modified as a TDR includes $93 million and $320 million that are non-accrual and $20 million and $6 million that are past due 90 days and still accruing interest as of September 30, 2013 and December 31, 2012, respectively.
  • Unpaid principal balance consists of Card Member charges billed and excludes other amounts charged directly by the Company such as interest and fees.
  • Represents the reserve for losses for TDRs, which are evaluated individually for impairment. The Company records a reserve for losses for all impaired loans. Refer to Card Member Loans Evaluated Individually and Collectively for Impairment in Note 4 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.

 

The following table provides information with respect to the Company's interest income recognized and average balances of impaired Card Member loans, which are not significant for GCS, and Card Member receivables, which are not significant for ICS and GCS, during the three and nine months ended September 30:

  Three Months Ended September 30, 2013 Nine Months Ended September 30, 2013  
   Interest     Interest     
   Income  Average  Income  Average  
(Millions)  Recognized  Balance  Recognized  Balance  
Card Member Loans:              
U.S. Card Services $ 11 $ 859 $ 34 $ 982  
International Card Services   4   66   12   68  
Card Member Receivables:              
U.S. Card Services   ―   62   ―   89  
Total $ 15 $ 987 $ 46 $ 1,139  
               
  Three Months Ended September 30, 2012 Nine Months Ended September 30, 2012  
   Interest     Interest     
   Income  Average  Income  Average  
(Millions)  Recognized  Balance  Recognized  Balance  
Card Member Loans:              
U.S. Card Services $11 $ 1,182 $ 35 $ 1,244  
International Card Services  4   73   12   77  
Card Member Receivables:              
U.S. Card Services   ―   120   ―   140  
Total $ 15 $ 1,375 $ 47 $ 1,461  

Card Member Loans and Receivables Modified as TDRs

The following table provides additional information with respect to the Card Member loans and receivables modified as TDRs, which are not significant for ICS and GCS, during the three and nine months ended September 30:

  Three Months Ended Nine Months Ended
  September 30, 2013 September 30, 2013
      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)  Balances(a) Accounts  Balances(a)  Balances(a)
Troubled Debt Restructurings:                
U.S. Card Services ― Card Member Loans 12 $91 $91 47 $357 $355
U.S. Card Services ― Card Member Receivables 4  49  49 16  204  202
Total(b) 16 $140 $140 63 $561 $557
                 
  Three Months Ended Nine Months Ended
  September 30, 2012 September 30, 2012
     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)  Balances(a) Accounts  Balances(a)  Balances(a)
Troubled Debt Restructurings:                
U.S. Card Services ― Card Member Loans 26 $193 $190 82 $600 $587
U.S. Card Services ― Card Member Receivables 9  104  103 28  326  320
Total(b) 35 $297 $293 110 $926 $907

  • Includes principal and accrued interest.
  • The difference between the pre- and post-modification outstanding balances is attributable to amounts charged off for Card Member loans and receivables being resolved through the Company's short-term settlement programs.

As described previously, the Company's Card Member 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 Card Member on a fixed payment plan not to exceed 60 months. Upon entering the modification program, the Card Member's ability to make future purchases is either cancelled or in certain cases suspended until successfully exiting the modification 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 months ended September 30, 2013 and 2012, the average interest rate reduction was 10 percentage points and 11 percentage points, respectively. For the nine months ended September 30, 2013 and 2012, the average interest rate reduction was 11 percentage points and 12 percentage points, respectively. None of these interest rate reductions had a significant impact on interest on loans in the Consolidated Statements of Income. The Company does not offer interest rate reduction programs for U.S. Card Services (USCS) Card Member receivables as these receivables are non-interest bearing.
  • Outstanding Balance Reduction: The table above presents the financial effects to 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. Starting in 2013, we began writing off Card Member balances upon entering into a settlement agreement, with any payments received thereafter recognized as recoveries, and as such, there is no longer a difference between the pre- and post-modification outstanding balances. This change had a de minimis impact on the amount of write-offs.
  • Payment Term Extension: For both the three and nine months ended September 30, 2013, the average payment term extension was approximately 12 months for USCS Card Member receivables. For the three and nine months ended September 30, 2012, the average payment term extension was approximately 12 months and 13 months, respectively, for USCS Card Member receivables. For USCS Card Member loans, there have been no payment term extensions.

The following table provides information for the three and nine months ended September 30, 2013 and 2012, with respect to the Card Member loans and receivables modified as TDRs that subsequently defaulted within 12 months of modification. A Card Member will default from a modification program after one and up to two consecutive missed payments, depending on the terms of the modification program. The defaulted ICS Card Member loan and receivable modifications were not significant.

  Three Months Ended Nine Months Ended
  September 30, 2013 September 30, 2013
      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 ― Card Member Loans  4 $37  15 $138
U.S. Card Services ― Card Member Receivables   1  8  3  33
Total  5 $45  18 $171
             
               
  Three Months Ended Nine Months Ended
  September 30, 2012 September 30, 2012
      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 ― Card Member Loans  4 $39  19 $149
U.S. Card Services ― Card Member Receivables  1  8  1  28
Total  5 $47  20 $177

  • The outstanding balance includes principal, fees and accrued interest on Card Member Loans and principal and fees on Card Member Receivables.