Bottom-line impacts of the CARD Act

For many credit card issuers, concerns over rising delinquency, and compliance with the CARD Act and other recent legislation have been top-of-mind—sometimes at the expense of more profitable activity. This contraction of revenue-generating events has been confirmed in a recent FICO survey. We asked a range of issuers, both large and small, to tell us what they’re doing in three risk management areas. Here are some highlights:

Credit line management:

• Only 5% of issuers continue to perform automated credit line increases after 2/22/10; everyone else turned off automated increases to adjust strategies and to implement new systems that meet regulatory requirements for assessing consumer “ability to pay.” Some issuers have been out of credit limit change strategies for over a year.
• 34% are manually processing line increase requests; more than half regard this as  a permanent measure.
• 45% are discussing or testing an income estimator solution.

Overlimit authorizations

• 42% stopped allowing customers to go overlimit in any way after 2/22/10.
• 40% are still allowing some overlimit transactions, with the decision made by account management software applying a “shadow” limit.
• 84% said it was not worth the effort to flag overlimit accounts that had not opted into fees.
• 13% are allowing opt-out accounts to go overlimit without charging a fee.
• 11% have turned off their authorizations strategy altogether.

Pricing

• 16% turned off price changing functionality as of 2/22/10.
• 79% adjusted penalty pricing to comply with CARD requirements.
• None implemented prospective balance/protected balance pricing, although a handful had plans to do so.

The statistics paint a very conservative picture—and a challenging one for profitability. For the sake of compliance and implementation speed, issuers seem to be sacrificing potential revenue. In authorizations, for example, one of the results is a spike in declines that can negatively impact revenue through lower utilization and cardholder attrition.

These impacts are adding to those resulting directly from CARD restrictions on interest and fees. The good news, in the case of these secondary revenue impacts, is that issuers can do something about them.

In fact, we're now seeing issuers transition from a tight focus on delinquencies and compliance to a more balanced approach that includes restoring revenues. You can find out more by reading our new Insights white paper, “How Are Issuers Changing Course Under the CARD Act?"