More than half a year after the centerpiece protections of a sweeping overhaul of credit card regulation took effect, portfolio yields appear to have stabilized at their highest levels in two decades.
For most major issuers, the three-month moving average of interest, fees and other income as a percentage of securitized receivables was close in September to where it was in March — and substantially higher than in March 2009 — as consumer price increases and other maneuvers helped offset the impact of the Credit Card Accountability, Responsibility and Disclosure Act (see charts below).
Performance has varied among major issuers. The yield at Bank of America Corp. has been relatively flat for the entire period. In an earnings call in October, Brian Moynihan, the company's chief executive, said revenues reflected a move away from risk. In the past, B of A had portfolios in which both revenue and chargeoffs "were excessive," he said, but now the "credit quality of what's coming on is very high."
Capital One Financial Corp. reiterated its expectation that the revenue yield for its domestic card operation (including receivables that do not back bonds) would ultimately drift down to 15% — or about the level that prevailed "before the great recession and all of the legislation," according to CEO Richard Fairbank — though the yield actually grew 16 basis points from the second quarter to 16.77% in the third.
In the company's earnings call, Fairbank said that improving credit performance allowed Capital One to realize more finance charges than it had anticipated, "swamping" negative factors like regulatory limits on penalty fees that took effect in August. The company anticipates pressure, however, from more balances paying teaser rates as loan growth picks up, he said, and from "high-quality" receivables like those it will add under its private-label partnership with Kohl's Corp., which produce relatively low chargeoffs and revenues.
"We have been able to absorb the existing and anticipated CARD Act impacts with our domestic card revenue margin and business model largely intact," Fairbank said.
JPMorgan Chase & Co. and Citigroup Inc. also said better credit performance had let them realize more finance charges. John Gerspach, Citi's chief financial officer, said his company expects the hit on its core portfolio this year from the CARD Act to be "at the lower end of our previously disclosed range of $400 million to $600 million."