Credit Card Companies Expect Painful 2010–As Should Their Customers
Credit Card Issuers Fail to Win Popularity Contest
During 2009, this column has not always been kind to credit card companies. But even it has never been quite so barbed in its criticism as the Detroit News was New Year’s day. In announcing his “annual Piggy Bank Award for the worst financial abuses of consumers,” Brian O’Connor, one of the newspaper’s columnists, wrote:
But in reviewing the oh-so-many qualified candidates for this year’s “Piggies,” one segment of the industry has been so porkishly gluttonous, so hoggishly amoral, so shoatishly selfish, so boarishly boorish, that their comparison to barnyard mud-dwellers disgraces even the lowest member of the species Sus scrofa.
You’ve already guessed who won Mr. O’Connor’s porcine award. Yes, it was the credit card companies.
Credit Card Trends That Left Issuers Punch-Drunk
To be fair, 2009 was a truly terrible time for card issuers. After years of high revenues and handsome profits, both of which looked set to continue indefinitely, they were suddenly hit with a double-whammy. First, the credit crunch led to lower consumer spending, a new reluctance to use all forms of credit, and rocketing default rates.
Then the companies were dealt a second blow by new credit card regulation in the form of the Credit Card Accountability, Responsibility and Disclosure Act (Credit CARD Act) of 2009. JPMorgan Chase & Co., the nation’s biggest card company, has estimated that the net revenues of its card services division are likely to drop by half or even three-quarters of a billion dollars annually just as a result of the new law.
How Bad Is It?
Bank of America is the country’s second-biggest credit card business. And just in the third quarter of 2009, its global card services division lost over a billion dollars. That’s a billion dollars flushed away in a mere 13 weeks. And its provision for credit losses in that quarter was $7 billion less pocket change. (Well, actually it was $25 million less, but that’s pocket change to these folks.)
Meanwhile, Discover Financial Services–nationally number four in credit cards, since we’re ranking–unveiled on December 17 its performance during the quarter ending November 30. Its U.S. credit card division reported: “Pretax income was $575 million in the fourth quarter of 2009 as compared to $646 million for the fourth quarter of 2008.” Discover’s share price dropped seven percent on the company’s overall results.
Credit Card Regulation Never Watertight
If there’s one thing at which bankers excel, it’s finding loopholes in regulations. Indeed, it already seems clear that card issuers are expending a great deal of time, energy, and ingenuity to circumvent the Credit CARD Act.
And that means that much of the pain that the credit card companies are feeling will be passed on to customers. For example, the new law stops issuers from imposing fees for overlimit spending–unless the customer actively opts into a scheme that permits such spending (your transaction won’t automatically be declined at the point of sale if you don’t have the necessary credit), and such fees.
So you can expect any day now to receive dazzlingly persuasive mailers from your issuers extolling the virtues of schemes that, in essence, permit the companies to charge you exorbitant amounts for making purchases that you can’t afford.
Credit Card Use That’s Responsible
If one of your New Year resolutions was to manage your credit card debt more responsibly, then why not start by getting a better grasp of what your cards are costing you, and how you can best pay down balances? Visit this site’s credit card calculators now.
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