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Quick Hits: Credit Cards Squeezed by New Rules


Brief scrutiny of today's headlines.


The Federal Reserve is expected to issue new rules Thursday that will change the way credit card companies do business.

The proposed new rules would:

  • Prohibit card issuers from increasing rates as they choose. But there would be exceptions, including customers who fail to pay the bill in 30 days.

  • The "universal default" may be banned. Under this rule, a bank can change credit card terms if the customer defaults on another bill, including utilities, gasoline or even a gym membership.

  • "Double-cycle billing" also may be eliminated. This procedure allows credit card companies to calculate interest in the current cycle based on a date in a prior cycle.

The new rules are good news for consumers, especially those who don't pay the bill in full each month. But the changes are likely to erode profits at a time when investors are seeking higher yield spreads for credit card-backed securities, given rising delinquencies and more and more balances being written off as uncollectable.

Consumers hold an estimated 694 million cards issued by Visa (V), MasterCard (MA), American Express (AXP) and Discover (DFS).

The proposed rule changes would hit major banks. Citigroup (C), JPMorgan Chase (JPM) and Bank of America (BAC) grabbed about 70% of the credit card market last year.

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