When the CARD Act was getting passed, the banks moaned over how having to deal with tighter consumer protection laws was going to kill their business. It turns out that those fears might have been a tad overblown. A new report from Nilson shows that since the legislation was enacted, profits at most of the credit card issuers actually shot up.
Among the provisions in the Act were items like banks weren’t allowed to raise interest rates on existing balances, payments had to be applied to balances with the highest interest-rate first, and they couldn’t change around the date your bill was due. It had to be the same every month. Pretty sensible stuff, right?
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Well, the banks argued that these rules—and others—would really cut into their profits and that they would have no choice but to give out credit to fewer people. They also started adding in new fees to make up for the lost money. Bank of America tried to start charging customers a $5 monthly fee just for holding onto a debit card. The backlash on that was so big they were forced to retreat and drop the fee, but other fees, like increased fees for checking accounts, stuck. In fact, free checking has all but disappeared at the big banks, with the availability dropping from 96% in 2009 to 34.6% in 2011, according to American Banker. The banks threatened that the Durbin amendment’s cap on interchange fees – the fees they charge merchants for processing your card transactions – would mean they would have to curtail free checking, and then made good on that promise.
Despite the new restrictions, the credit card issuers made out just fine. According to the report, JPMorgan Chase profits are up to $4.54 billion from $2.87 billion, American Express is up to $2.68 billion from $2.23 billion, and Discover is up to $3.35 billion from $1.13 billion. However, the number one issuer, Bank of America, dropped from $6.98 billion to $5.79 billion, and Citigroup, ranked sixth, went down from $2.1 billion to $.11 billion.
[Related Article: Card Fees Surpass Interest Revenue, Will Get Worse Warns Analyst]
“Over the past two years, we’ve seen issuers add fees, increase interest rates on some cards (particularly on subprime lenders), and add new revenue streams to make up for the losses due to regulation,” said Beverly Harzog, Credit.com’s credit card expert. “The lenders just found other ways to make revenue, which is what a for-profit company has to do to survive.”
“I think that the CARD Act was necessary because it prevented some predatory practices by lenders,” she added. “The credit card environment is a much safer place now, especially for consumers who revolve a balance.”
It turns out that protecting consumers from lender excesses isn’t so bad for business after all.
[Related Article: How the Credit CARD Act of 2009 Affects You]
Image: jurvetson, via Flickr.com