By Jessica Silver-Greenberg
The Wall Street Journal
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Whomever President Barack Obama taps to head the new Bureau of Consumer Financial Protection could find it difficult to keep ahead of the credit-card industry.
The Credit Card Accountability Responsibility and Disclosure Act of 2009, known as the Card Act, was intended to reshape the contours of consumer finance. Among other things, it forces card issuers to give customers more notice about interest-rate increases and restricts certain controversial billing practices such as inactivity fees.
The Card Act forces issuers to give customers more notice about interest-rate increases, and restricts certain controversial billing practices such as inactivity fees.
Yet some of the biggest card issuers in the U.S., including Citigroup Inc., J.P. Morgan Chase & Co. and Discover Financial Services, are already rolling out a slew of fees designed to recapture some of their lost income, in part by skirting the new rules. Some banks may even be violating the law outright, say consumer advocates.
“Card companies are figuring out how to replace old fees with new ones,” says Victor Stango, an associate economist with the Federal Reserve Bank of Chicago and a professor at the University of California, Davis, who has been analyzing how the Card Act will affect consumer banking. “It’s a race between regulators writing ever-more-complex laws and credit-card companies setting up ever-more-complex fees.”
The banks have a big gap to fill. The Card Act is expected to wipe out about $390 million a year in fee revenue, according to David Robertson, the publisher of industry newsletter Nilson Report. On July 16, during its second-quarter earnings call with analysts, Bank of America Corp. Chief Financial Officer Charles Noski warned that the Card Act and other regulatory changes would prompt the bank, the nation’s largest in assets, to write off up to $10 billion in the third quarter.
“If you have every major issuer saying that we are losing our shirt, then that speaks volumes,” Mr. Robertson says. “Proportionately, these fees should be understood as almost inconsequential compared to the losses.”
So the banks are getting aggressive. According to a July 22 report from Pew Charitable Trusts, a nonpartisan research group, the industry’s median annual fee on bank credit cards jumped 18% to $59 between July 2009 and March 2010. At credit unions, annual fees soared 67% to $25. During the same period, the median cash-advance and balance-transfer fees jumped by 33%.