Credit Card Companies’ Bosses Are Like the Incredible Hulk

It’s hard to be sympathetic, but the bosses of credit card companies have had a difficult year–or two. And they’ve reacted like the Incredible Hulk. “Don’t make me angry. You wouldn’t like me when I’m angry.”

Three Big Troubles

Three factors have particularly enraged them:

1. The credit crunch has led to a huge rise in delinquent accounts–too many people are unable to pay down their credit card debt
2. Credit card regulation–in the form of the Credit Card Accountability, Responsibility and Disclosure Act of 2009–has threatened to reduce significantly their traditionally huge profit margins
3. As a result of the first two, their share prices have taken a hit

But this week, industry executives have received good news on all three fronts they’ve been battling.

Delinquencies on Credit Card Debt Down

Earlier this week, TransUnion, which specializes in credit and information management, announced its forecast for credit card delinquency in 2010. And it expects a decrease in those who are 90 days or more behind with payments on one or more of their credit cards.

At the end of 2009, 1.07 percent of all cardholders are in that position. By the end of 2010, that number is forecast to drop to 1.04 percent. If that prediction proves correct, then the number of delinquent credit card accounts will have dropped by 23.6 percent in the three years since the end of 2007.

Ezra Becker, director of consulting and strategy in TransUnion’s financial services group, commented:

We anticipate that credit card delinquencies will decrease for the third straight year as consumers continue to keep incremental debt to a minimum, and aggressively manage debt repayment. However, the decrease is projected to be smaller than in previous years, indicating that this might be the best consumers can do in managing delinquencies in the current economic environment. It will be interesting to see how the CARD Act, primarily taking effect in February 2010, will impact both consumer, and lenders.

Credit Card Regulation Ducked

The Credit CARD Act to which Mr. Becker referred created real fear among executives. But, luckily (although only for card issuers), legislators gave the companies until February 2010 before the new law came fully into force. So companies had plenty of time to hike rates and impose new credit card terms and conditions before the regulations could bite.

And this week, analyst Bruce Harting of Barclays Capital, told his clients that, although there had been an expectation that the Credit CARD Act was likely to reduce one card company’s fee income by up to 20 percent, “…we believe this will be more than offset by declining credit costs and stable margins…that have benefited from the repricing that occurred.”

Share Prices Tipped to Rise

Bank of America Merrill Lynch analysts issued a note Monday that upgraded three important credit card companies from “underperforming” to “neutral.” And, as one would expect, those share prices rose in response.

The analysts’ note said: “We think Friday’s release of falling unemployment rate and better-than-expected payrolls could serve as the fundamental inflection point that we have been waiting for.”

Time to Back Off

So, from the industry’s point of view, credit card trends this week are all positive. Does this mean that card issuers will stop being angry and start treating their customers less aggressively?

Only time will tell.

Published 12/10/09 (Modified 04/23/12)