In the unlikely event of your bank failing, will your credit cards continue to exist?
In the past month or so, we've seen a few high-profile bank failures and several others that experts have expressed concerns about. For everyday consumers, FDIC insurance will make sure your deposits of up to $250,000 per institution are safe, but what if you owe the bank money on a credit card?
The short answer is that you still owe the money. But there's a lot more to the story than that, and there is some degree of uncertainty as to whether your credit card account will continue to exist. So, in the unlikely event the bank that issued your credit card fails, here's an idea of what you can expect.
You still owe your credit card balance
When a bank fails, it is taken into receivership by the Federal Deposit Insurance Corporation, or FDIC. The FDIC's preference is that the bank's assets and deposits will be bought by a healthy bank immediately, but if there is no buyer, a temporary FDIC-controlled bank can be established to ensure the continuity of operations.
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In either case, there are a few important points to know.
- First and foremost, you still owe the money. If your bank fails, your credit card balance doesn't go away. The same is true for any other loans you may have at a failed bank.
- Second, you should receive a communication within a few weeks regarding who you should send future payments to. If you haven't heard within a reasonable timeframe, reach out to whatever bank acquired your failed bank. Or, check the FDIC's press release announcing the bank's closure for information. For example, when Silicon Valley Bank failed, the FDIC's press release said that "loan customers should continue to make their payments as usual."
- Third, your account will continue to exist and its terms will remain the same unless you hear otherwise. As we'll see in a real-world example in a bit, acquiring banks can certainly choose to close credit card accounts.
What has happened in the past?
The largest bank failure in U.S. history was Washington Mutual at the height of the financial crisis in September 2008. At the time, Washington Mutual was a top-10 credit card issuer with about 15 million open credit card accounts and a total of $25 billion in outstanding balances.
JPMorgan Chase acquired Washington Mutual upon its failure, including its credit card portfolio. So, Washington Mutual's customers were now Chase credit card customers and started making their payments accordingly.
However, JPMorgan Chase's management felt that Washington Mutual's credit card portfolio was of less-than-stellar credit quality and started making some changes. Some accounts were abruptly closed soon after the bank was acquired, and other cardholders reported having their account terms (such as their minimum payment requirements) modified. And yes, if a bank closes your credit account, you still owe the money and must make payments as agreed. You just can't make any new purchases.
The bottom line
I've said it a few times, but it's worth repeating: If your bank fails, you still owe any outstanding balances on credit cards or other loans. The only immediate change is what bank you owe the money to.
Having said that, it's entirely possible that your credit card account could end up being closed, or your account terms could be modified by the acquiring bank. You'll typically get a fair amount of notice before your account terms change, but account closures can take effect immediately if the new bank decides to do it. So, if your bank fails, make sure you pay attention to any payment instructions from the FDIC or the acquiring bank, and keep an eye out for any account changes that may be coming.
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FAQs
You still owe your credit card balance
What happens to credit card debt if the bank collapses? ›
Typically, your card transactions will not be impacted. After a buyer takes over your card account, it will notify you in advance of any changes to the terms of the account. In case the government doesn't find a buyer for the failed bank, a custodian would manage its accounts while it tries to sell them off.
Do you still owe money if a bank collapses? ›
The short answer is that if your bank fails and you have outstanding loans, you still owe the money. For more context, when a bank "fails," it means that the FDIC has determined it cannot continue to operate independently for whatever reason (usually it is insolvent, or quickly heading in that direction).
Can you ask bank to forgive credit card debt? ›
Most credit card companies won't provide forgiveness for all of your credit card debt. But they will occasionally accept a smaller amount to settle the balance due and forgive the rest. Or the credit card company might write off your debt. But this step doesn't eliminate the debt—it's often sold to a collector.
What are the consequences of bank failure? ›
One of the primary effects of bank failure effects is that this failure can contribute to economic recessions or slowdowns. The disruption in credit availability, reduced consumer spending, and increased uncertainty can negatively impact economic growth.
Can banks seize your money if the economy fails? ›
Banks during recessions FAQs
Your money is safe in a bank, even during an economic decline like a recession. Up to $250,000 per depositor, per account ownership category, is protected by the FDIC or NCUA at a federally insured financial institution.
Will banks write off credit card debt? ›
Typically, a credit card company will write off a debt when it considers it uncollectable. In most cases, this happens after you have not made any payments for at least six months. However, each creditor has a different process for determining whether a debt is uncollectable.
How can I legally get rid of credit card debt? ›
The good news is there are legal ways to reduce and even eliminate your credit card debt – including debt management plans, bankruptcy, and in some cases, debt settlement. Whichever approach you choose, know that there are also drawbacks, ranging from legal fees to credit score damage.
Is the government helping with credit card debt? ›
Unfortunately, there is no such thing as a government-sponsored program for credit card debt relief.
Does credit card debt ever get written off? ›
Generally, writing off some or all of your credit card debt is done through a debt solution. There are multiple debt solutions that can allow you to write credit card debt off, including: Individual Voluntary Arrangement (IVA) Debt Relief Order (DRO)
If your bank fails, up to $250,000 of deposited money (per person, per account ownership type) is protected by the FDIC. When banks fail, the most common outcome is that another bank takes over the assets and your accounts are simply transferred over. If not, the FDIC will pay you out.
Which banks are failing in 2024? ›
Republic First Bank reported unrealized securities losses in excess of its equity as early as June 2022. State regulators closed Republic First Bank in April 2024, marking the first bank failure of the year.
Should I worry about bank failures? ›
If the bank fails, you'll get your money back. Nearly all banks are FDIC insured. You can look for the FDIC logo at bank teller windows or on the entrance to your bank branch.
Will credit card debt be wiped out? ›
To be clear, debt forgiveness does exist, and it's possible to settle your debt for less than what you owe. But to get it totally erased is rare, and it usually requires an extreme measure, such as bankruptcy.
Can your bank account be seized for credit card debt? ›
If you owe money to a credit card company, for example, they must first receive a judgment against you in court before they can freeze your bank account.
Can you lose your house over credit card debt? ›
If you owe money for most other debts like credit cards and medical bills, you (usually) did not sign a security agreement. So, the creditors cannot seize your home to pay the debt. But, if you want to sell your home and creditors have filed judgments for unpaid debts, you may need to pay those debts before the sale.
Do banks sue for credit card debt? ›
If you have credit card debt that the creditor claims you did not pay, you may be facing issues with debt collectors or even a lawsuit.
