Credit Industry To See Major Changes Due To Credit CARD Act

As the activation of the Credit CARD Act nears, the credit card industry is girding itself for the major changes that the Act will bring. Basically, credit card companies are going to have to overhaul their business practices to keep themselves profitable while still being competitive.

During American Express’ October conference call for the discussion of the company’s third quarter results, the company’s CEO and chairman Kenneth Chenault said, “It’s clear that we won’t be returning to ‘business as usual’ as we come out of this economic cycle. I believe we’ll face a ‘new normal’ with a number of substantial changes”.

The expectation in the industry is that credit card companies may begin testing credit card tactics to earn them profits without losing credit card customers. Bank of America has already done this with their introduction of annual fees to a small percentage – less than half – of their credit card customers. The credit card company is testing how much credit card holders will take before they walk away from the bank’s credit cards.

Anne Pace, the spokesperson for Bank of America said that the company is trying to understand how much credit cards mean to consumers. She added that, at the moment, the impact of the Credit CARD Act is really too soon to tell.

Bank of America’s move may well become widespread among credit card companies as they rush to find other revenue streams to replace what the Credit CARD Act will outlaw. So far, it seems that most credit card companies are turning to old standbys such as hiking interest rates, introducing new fees such as annual fees. Some have even gone so far as to cut available credit for their existing card holders, though allowing them to opt out and cancel their credit cards.

While different credit card companies will try different strategies to earn profits, a strategy that is sure to become common among most credit card companies is to keep their credit card holders with good standing while pushing away those who have not so good standing such as those with bad credit scores, bad payment records, infrequent credit card usage and those who avoid revolving debt by paying off their bills every month.

A few major credit card companies are already following this strategy. For instance, JPMorgan is already decided in developing specific credit card brands for specific customer segments. Evidence shows that other major credit card companies may also be following suite. For instance, the Basic brand visa card of Bank of America, touted by the company to be a simplified credit card offering designed specifically for the Credit CARD Act, seems to be a step in a similar direction.