In what are being described as the
most sweeping changes to the credit card industry since it began,
the Federal Reserve has approved rules to regulate fees charged to
The implementation and implications
of the CARD Act have been discussed in great length by Cards
International, and now the new rules have been finalised, the
impact can be better judged.
According to estimates made by
investment bank Keefe Bruyette & Woods, the changes will cost
American Express, Discover Financial, Capital One and Alliance Data
Systems a combined $1.2bn. That makes up around 39% of their
revenue from late fees (Federal
Reserve limits credit card fees).
Jamie Dimon, CEO of JPMorgan Chase,
has previously estimated the total cost of new regulation on his
business would be as much as $750m. Credit Suisse analysts estimate
credit loan reduction of between 4 and 5% by the end of 2010.
Undoubtedly the new ruling, which
will mean banks cannot charge more than $25 for late payment fees,
will put extra strain on a section of the payments industry that
was already under pressure from deteriorating credit quality and
shrinking loan books.
The news is not all bad, however,
particularly for credit card issuers in emerging markets like
Brazil. A new wave of businesses are emerging, like Banco Fibra in
Brazil (Banco Fibra goes for
growth in Brazil), benefiting from a rapidly
growing affluent class in the country.
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You can find a full round-up of the latest developments in the
credit card industry in a special section at the back of
CI, part of a series of quarterly focuses that will
alternate between prepaid, credit and debit. Next month we will be
focusing on the debit side of the business.