The rising pressures on credit card issuers

Card issuers are working feverishly to mitigate the effects of a Consumer Financial Protection Bureau rule that would mandate a cut in credit card late fees to $8 for all issuers, from the current maximum of $32 for the first late payment and $41 for subsequent late payments.

Synchrony Financial is hiking interest rates it charges to its customers, part of a series of steps to address the financial impact of the CFPB rule (which was originally set to take effect May 14, until a judge issued an injunction delaying the rule's effect).

The lender, which offers credit cards in partnership with retailers and other brands, has been raising annual percentage rates and adding other fees to limit the rule's impact on the company's bottom line.

"Our goal from the beginning has been to protect our partners and continue to provide credit to the customers that we do today," CEO Brian Doubles said. "And unfortunately, that's impossible to do without these offsets."

Another card issuer, Bread, told analysts during its earnings call that after deeper analysis of the final rule, plus a recent flurry of discussions with its retail credit card partners about mitigation strategies, the firm anticipates a 20% loss of revenue during the fourth quarter of this year, versus a 25% hit, which it forecast last year.

The revised forecast regarding the CFPB action "highlights the continued progress we have made since the final rule was released as a result of discussions with our brand partners regarding customer pricing actions and clarity on the timing of the actions," Perry Beberman, Bread's chief financial officer, told analysts during a conference call to discuss earnings. He said the firm may even find ways to drive the 20% hit lower, noting there is still "ongoing negotiation" with merchant partners.

Read more: 
Synchrony hikes interest rates on credit cards to offset late-fee rule by Polo Rocha
Bread Financial 'feverishly' preps for CFPB late-fee rule scenarios by Kate Fitzgerald

Bank of America's profits dipped in the first quarter as it built a larger cushion for bad credit cards and office loans.

The Charlotte, North Carolina-based bank reported that its net charge-offs increased by more than 80% from the same period last year, from $807 million to $1.5 billion, as consumers struggled to pay off their credit card debt and turbulence in the commercial real estate sector continued. To manage the rising credit risk, Bank of America posted a $1.3 billion provision for credit losses, up from $931 million a year earlier.

"All of this is still well within our risk appetite and our expectations, and it's consistent with the normalization of credit we've discussed with you in prior calls," Chief Financial Officer Alastair Borthwick said Tuesday on the bank's quarterly earnings call.

Separately, first-quarter earnings fell at Regions Financial, with higher credit costs and operating expenses cutting into the Birmingham, Alabama, company's bottom line.

The $155 billion-asset Regions said its adjusted net charge-offs for the quarter totaled $121 million, or 50 basis points of average loans. That was up from 39 basis points the prior quarter. The increase was due primarily to a large restaurant credit and a commercial manufacturing loan, the bank said.

President and CEO John Turner Jr. said Regions expects further credit deterioration as "pressure remains within pockets of business lending." Weakness is largely contained to sectors the bank identified as vulnerable last year, including office, senior housing, health care and technology, he said.

Read more:
Bank of America hurt by rising losses in credit cards, office loans by Catherine Leffert
Credit, check fraud costs weigh on Regions' earnings by Jim Dobbs

Executives at small airlines complained to regulators this month that airline rewards credit cards — issued by big banks on behalf of large airlines — limit competition by making it harder for smaller carriers to appeal to consumers.

Eight panelists, including executives at Allegiant Air, Breeze Airways and Spirit Airlines, testified at a two-hour hearing in Washington held by the Consumer Financial Protection Bureau and the Department of Transportation. The witnesses delved into other thorny topics such as whether airlines are delivering on promised rewards, why flight attendants have to supplement their income by selling credit cards and if consumers are taking on more debt just to accrue miles and points. 

Yet competition among airlines — and whether the money generated from rewards and loyalty programs has made it difficult for small entrants to compete — captured much of the attention.

"One of our concerns, of course, is what role that these programs may play in affecting the ability of other players, smaller players or newer players to compete," said Secretary of Transportation Pete Buttigieg, who co-chaired the hearing. He noted that when the Airline Deregulation Act was enacted in 1978, "it was confidently predicted that there would be at least 100 major competitive airlines by the turn of the century. Obviously things didn't work [out] that way."

Read more:
Airline rewards credit cards come under attack at CFPB-DOT hearing by Kate Berry