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CARD Act Compliance Costs Outweigh Fee Benefits?

posted by Adam Levitin

The American Banker has an interesting piece on the impact of the Credit CARD Act.  It's behind a paywall, but here's the key insight: 

Credit card issuers were expected to raise fees and cut rewards to compensate for lost revenue from new regulations. But some have done the opposite, eliminating fees they are still permitted to charge. Most banks have increased certain costs, such as purchase annual percentage rates, and added annual fees for some cardholders in response to the Credit Card Accountability, Responsibility, and Disclosure Act's new restrictions on rate increases, penalty fees and other terms. The ones that have also eliminated fees — including Bank of America Corp. and Wells Fargo & Co. — claim they did so as part of an effort to be more transparent. Some experts offer another explanation: it may simply be cheaper for issuers to drop these fees rather than bring them into compliance.

At the very least, this indicates that the impact of the Credit CARD Act is more complex than its critics would have it.   

Comments

If credit charges are focused on interest rates and annual fees rather than a plethora of different charges, that is generally a victory for transparency. I am not aware the anything in this legislation was intended explicitly to cap credi card lenders' charges -- I for one wouldn't mind that -- so a move toward simplicity and transparency may be about the best of the available results.

In that case, credit card holders may choose to find other service providers.

The Card act is not just about limiting credit card profits , it is about transparency and limiting unintended consequences such as a weekend or holiday payment due date , and surprise hidden fees and 29.99% interest rates due to unplanned events or tricks that the card companies use. However, Congress does not have the appetite to cover auto lenders and other folks that they should in the financial reform bill. This may be related to keep of the bad press that big banks have gotten, I state this because bank of america and other banks did extend the card act to non-personal cards, although Chase may not, bank of america made the decision voluntary.

I've just discovered this blog- and am loving it. I'm a national expert on Credit UNION credit card programs, which are known to be more fair and ethical than the bank counterparts- same Visa and MasterCard brands- but different issuers.

I read about the banks getting rid of some higher rates and fees- one being elimination of those drastic penalty APRs- the ones that soar to 29.99%, as though the $35-$39 late payment fee is not enough penalty for the consumer.

Banks are passing this "new" elimination of fees and some APRs as "Good PR". This is not only a costly compliance issue with the CARD Act, this penalty rate also drives more consumers to bankruptcy. Bank charge offs are increasing as consumers are throwing in the towel. Hmmmmm.....so what is the alternative? Eliminate the penalty APR. Not rocket science, bankers.

The one KEY to this whole bank credit card fiasco is to address with the BANKs the revenue sources. For example a credit union card program revenue is derived 70% finance charge income, 15% fee income and 15% interchange- and credit unions still manage overall profitability and charge offs, while managing the operating expense of the program. The NCUA also prohibits Federally Chartered credit unions from charging ANY APR in excess of 18%. Where is the mandate for banks?

And the banks? Try 45%-50% of total card program revenue comes from fee income alone! And we all know where that income ends up....bank bonuses and stock holders. The reality is, banks can give us all the justifications in the world as to the reasoning for their fees, but we don't buy it. Credit Unions have been operating very profitable card programs for decades, without gouging the cardholder.

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