March 19 (Bloomberg) -- JPMorgan Chase & Co. and General Electric Co., two of the biggest sponsors of store-branded credit cards, face a rebellion by customers who may tear up their bills from defunct retail chains.

Consumers who used store cards to buy flat-screen TVs from Circuit City Stores Inc. and espresso makers from Linens ‘n Things Inc. had their accounts shut after the slump in consumer spending forced the retailers to liquidate. Lenders now want to collect from customers who were stripped of rewards points and have no further use of the plastic. Private-label credit-card debt in the U.S. totaled $111 billion as of January, according to the Nilson Report.

“If your card is closed without your permission and you’re not getting your rewards anymore and it’s a company that’s gone out of business, you’re not going to necessarily be the loyal and positive customer for the bank,” said Emily Peters, analyst at Credit.com Inc., a personal-finance company in San Francisco. “In this economy, there’s a lot of people having to make these tough choices about which bills to pay.”

Credit-card companies already face surging charge-offs as the highest unemployment in a quarter century leaves more consumers unable to pay their bills. Delinquency rates at JPMorgan have risen every month since August and started climbing three months earlier at GE Capital, Citigroup Inc. and American Express Co.

Charge-Offs Increase

Private-label cards carry added risk because credit requirements are less stringent, said David Robertson, president of industry publication the Nilson Report. Charge-offs on private-label cards, which are about 1.8 percent higher than for general purpose cards, are likely to “spike,” Robertson said in an interview from Carpinteria, California.

“People ask -- why am I going to be a customer to this sinking ship,” he said.

Circuit City cardholders owe their debts to JPMorgan, while GE Capital owns the loans for Linens ‘n Things and clothing chain Mervyn’s LLC. For liquidated retailer Sharper Image Corp., the loans are held by Alliance Data Systems Corp.

Holders of Circuit City cards were already being squeezed last year before the stores closed. JPMorgan boosted late charges and finance rates in the fourth quarter, according to Circuit City’s bankruptcy filing.

More than two dozen U.S. retailers have filed for bankruptcy since the start of 2008. The International Council of Shopping Centers estimates that 146,000 stores will close this year. Companies that have been shuttering branches include Sears Holdings Corp. and Home Depot Inc.

GE Capital

GE, the world’s largest maker of jet engines and power turbines, tried to sell its card unit last year as it sought to be less dependent on finance. GE Capital has the biggest private-label business in the U.S. with about $32 billion in loans outstanding, according to data from company reports compiled by Bloomberg. Clients of the Stamford, Connecticut- based company include Wal-Mart Stores Inc. and Lowe’s Cos.

Linens ‘n Things and Mervyn’s “represent a very small percentage of the overall portfolio,” said GE Capital spokesman Stephen White, without offering specifics.

At a meeting with investors today in New York, GE said that GE Capital won’t need more outside funding and will at worst break even under scenarios the Federal Reserve is using to test the ability of banks to withstand a further weakening of the economy.

GE shares fell 19 cents, or 1.8 percent, to $10.13 in regular trading on the New York Stock Exchange. The stock has tumbled 72 percent in the past year.

JPMorgan’s Cards

JPMorgan, based in New York, was the fourth-biggest private-label lender in 2007, with $4.3 billion in outstanding loans, according to the Nilson Report. Data for 2008 wasn’t available. The bank, whose clients include Kohl’s Corp. and Pier 1 Imports Inc., doesn’t provide details on accounts, JPMorgan spokesman Paul Hartwick said.

JPMorgan fell $2.16, or 8 percent, to $24.95 in trading on the NYSE. The shares have dropped 41 percent in the past year.

Citigroup Inc. was the second-biggest private-label issuer in 2007, followed by HSBC Holdings Plc, Nilson said. Alliance Data was fifth.

Private-label cards are often promoted on sales floors by employees who work for commissions. Same-day discounts of up to 20 percent were typical, said Credit.com’s Peters.

Vanishing Rewards

Retailers also lured customers by offering rewards, such as gift certificates at Circuit City and $10 off for every $200 spent at Linens ‘n Things. Those benefits are gone and visitors to Circuit City’s rewards Web site now find this message: “Circuit City rewards are no longer redeemable. We apologize for any inconvenience this may cause.”

With the economy in a tailspin and benefits revoked, consumers aren’t likely to be forgiving, said Richard Shane, an analyst covering financial companies at Jefferies & Co. in San Francisco.

“One reason people pay their bills is because it’s their obligation and another is so they can use the card going forward,” Shane said. “In these cases, they’re going to lose access to the credit no matter what.”

To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net.

Last Updated: March 19, 2009 17:18 EDT