From Sunday, issuers of credit cards could lose in excess of 3 billion dollars of revenue every year as the latest set of federal laws over the late payment fees would come into effect. These rules are likely to cut the average late fees to 25 dollars. This will fuel a higher mark for minimum payments on the credit card as companies are trying to deploy new tactics to get back some of the lost revenue. A credit card comparison website CardHub.com has estimated these declines in revenue of the credit card issuers.
According to rick Fischer, a partner at Morrison and Foerster, the law firm, the new rules are aimed at restricting the capacity of the card issuers to impose late fees on the customers. Chief executive of CarHub.com Odysseas Papadimitriou, estimated that in 2008 when there were none of the new regulations in place, the credit card issuers had managed to rake in a whopping 11.4 billion dollars in late fees. According to him, this revenue, with the new laws and regulations coming into effect, will drop to 8.1 billion dollars, marking a 29% decline. Calculating the actual numbers is a tough task because most credit card issuers do not reveal how much revenue they derive by imposing fee and various other penalties on the customers falling behind on their bill payments.
As per the new rules coming into effect from August 22, the late payers will be charged either the minimum payment due or 25 dollars, whichever number is lower. This eliminates the typical 39 dollar fee that is currently levied by the card customers. However, card issuers are allowed to charge a late fee of 35 dollars on repeat offenders within the period of half year. This rule is one of the threads in the net that is dubbed Credit card Accountability Responsibility ad Disclosure Act of 2009. As per Robert Hammer, who runs a credit card consulting firm, these new laws could cost the card industry a substantial amount of about 11 billion dollars every year for the coming 5 years. David Nelms, who is the chief executive of Discover Financial Services, reported in June that curbing late payment fee could have an impact of up to 90 million dollars on the income of the company prior to taxes over a year long period. Bank of America Corp, predicted a loss of 1 billion dollars in revenue after taxes.