Implementing provisions of the Credit Card Accountability, Responsibility and Disclosure Act will cost JPMorgan Chase & Co. $500 million to $750 million this year, Chase CEO Jamie Dimon said last week in his annual letter to shareholders.
Calling the last two years “among the most extraordinary and challenging” in the company’s recent history, Dimon outlined recent setbacks in its Card Services unit and additional challenges facing the operation.
Noting legislators enacted the Credit CARD Act in response to certain practices considered not consumer friendly, Dimon said many of the act’s provisions were “completely appropriate.” However, preparations for the law going fully into effect Feb. 22 hurt earnings last year and will further cramp Chase’s earnings this year, he said.
In accordance with the new rules, which significantly restrict issuers’ ability to increase cardholders’ interest rates, Chase last year began to sharply reduce introductory low-rate card offers and promotional balance-transfer offers. “This change alone reduced our outstanding balance by $20 billion,” Dimon wrote.
Looking ahead, Chase no will longer offer cards to 15% of its current customers, Dimon said. “This is mostly because we deem them too risky in light of new regulations restricting our ability to make adjustments over time as the clients’ risk profile changes,” he wrote.
“By all measures, 2009 was a terrible year for our credit card business,” Dimon wrote, noting the card unit lost $2.2 billion last year; it generated a $780 million profit in 2008. Cards last year represented 19% of Chase’s $100.4 billion in managed net revenue.
On the positive side, last year Chase’s cards market share increased, and the Card Services unit “launched more products at one time than any other issuer,” Dimon noted. Examples include the Chase Sapphire premium rewards card, the Ink suite of business cards, the Ultimate Rewards flexible-rewards program and Blueprint, a set of tools to manage card spending.
Chase has 245 million cards in circulation held by approximately 50 million customers with $163.4 billion in outstanding receivables.
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