What Does the Future Hold for Credit Card Issuers
The Credit Card Reform Act legislation which was recently passed by Congress and signed by the President will bring huge changes to the bottom lines of the major credit card issuers. It will mean sharply lower revenue for all issuers and may even put some out of business. However, when all is said and done the credit card issuers that have positioned themselves properly during this credit crisis should come out stronger than ever.
The Credit Card Reform Act is designed to offer cardholders protection from predatory practices employed by credit card issuers. Among other things, it will put a limit on interest rates and fees and will take effect in February 2010. Curtailing this revenue flow will put major pressure on credit card companies and will put a huge dent in what could only be described as a “cash cow” worth billions of dollars to the credit card companies in years past.
Major credit card issuers are already facing the fight of their lives as they battle rising defaults and charge-offs in record numbers. One company in fact, has already ceased operations. That company is Advanta and they were the 11th largest credit card issuer in the country. Advanta was especially hard hit because they specialized in giving credit to small businesses. And of course, small businesses have been hurt the worst during this recession.
But industry experts and analysts see a silver lining through these clouds for three of the largest credit card issuers – American Express, J.P. Morgan Chase and Discover Card services. These three companies actively limited their exposure to subprime cardholders and are therefore in a much better position to emerge from this economic downturn intact and ready to do business with much healthier books as compared to their competitors.
Those competitors that are more or less in big trouble financially because of their huge exposure to subprime borrowers include Citigroup, Capital One and Bank of America. They are much more dependent for profits on interest rates and fees than their peers and will therefore take a much bigger financial hit. These were the companies that were aggressively stuffing people’s mailboxes with applications and approving just about anyone over the past decade.
In addition, Bank of America and Citigroup also took a huge cut of the federal bailout money to keep them solvent and that will dampen any future expansion plans. Each financial institution took $45 billion and you can bet that won’t be paid back anytime soon either – at least not in this economic climate. It seems as though it was a race to see who could grow the fastest the quickest. And in retrospect, it was a very bad idea. The party, as they say, is definitely over.
Related Information:
- Credit Card Issuers Are More Willing Than Ever Negotiate Repayment Plans Credit card companies are becoming more receptive to negotiating payments with their customers....
- Credit Card Issuers Are More Open to Debt Management Plans Credit card issuers willing to work out debt management plans with struggling cardholders....
- Saunders Lays Out Visa’s Future Visa chairman Joseph Saunders breaks down his vision for the future health and viability of his company....
- Consumers Are Angry with Credit Card Issuers Consumer anger with credit card issuers has reached a new high....