Card Firms Gird for Cut to Late Fees

Wall Street Journal
August 21, 2010

Starting Sunday, credit-card issuers could lose more than $3 billion in revenue annually, as new federal laws on late-payment fees kick in.

The rule, which on average cuts late fees to $25, could fuel higher minimum payments required on plastic as companies deploy new tactics to claw back some of the lost revenue. The estimated decline in revenue comes from CardHub.com, a credit-card comparison website.

The new rules "restrict the ability of card issuers to impose late fees," said Rick Fischer, a partner at law firm Morrison & Foerster.

Odysseas Papadimitriou, chief executive of CardHub.com, estimates that in 2008, before the new regulations, issuers collected around $11.4 billion in late fees. He expects this revenue to drop 29% to around $8.1 billion, as the new rules governing late payments on card balances go into effect.

To be sure, calculating the financial impact is difficult because few card companies disclose how much revenue is derived from imposing fees and other penalties on customers who fall behind on their bills.

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