These are scary times for investors. All kinds of new regulations -- some proposed, some already enacted -- will affect a wide variety of companies and industries. For example:
- Some are calling for restricting the marketing of foods to children. That could have an impact on companies such as Kraft
(NYSE:KFT), ConAgra (NYSE:CAG), and Hershey (NYSE:HSY).
Health-care reform of some sort seems increasingly likely. Companies that might be affected include UnitedHealth Group
(NYSE:UNH)and WellPoint (NYSE:WLP).
- Environmental regulations aimed at slowing climate change and encouraging alternative energy usage could put a crimp in the performance of companies like ExxonMobil
Poor credit card companies don't even have to worry about new regulations so much, because they've already been socked by a bunch, via the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009. It restricts over-limit fees, marketing credit cards to those under 21, and companies' abilities to increase interest rates, among other things.
Yikes! It's enough to make a credit card company investor tremble. But I'm here with good news: These clever companies have found ways to boost profits despite the new regulations! Some may turn out to be companies able to dominate their industry!
Cheer with me now, as I recap some of their responses:
- They've lowered many cardholders' limits. According to a FICO study, this has happened to more than 50 million people over the past year and a half.
- They've increased interest rates ahead of the new rules. (Many haven't taken effect yet, so these companies have been acting fast.) Citigroup, for example, reportedly bumped up many cardholders' rates to about 30% -- and we're not just talking about cardholders with the worst credit ratings! Imagine this: If you owe $10,000 on your card, you'd be charged $3,000 in interest in a single year. And that's not counting any money to pay down the principal. That's the kind of rate that can be like quicksand to debtors. But investors might want to salivate at all that interest rolling in.
- Some companies just went ahead and closed accounts with little or no notice, giving a lousy surprise to cardholders at the checkout counter. Which borrowers do they want to lose? It would make sense to focus on those who don't rack up big debts and contribute lots of interest payments.
- Card companies have instituted annual fees on many cards -- some as much as $85 or more. That's easy money for the card companies … if you're willing to pay.
- Fixed interest rates have been changed to variable. That could lead to even more automatic rate increases, given that the prime rate is an unusually low 3.25% right now.
- "Rewards"-focused cards have been tweaked to be less generous.
- Fees have been introduced or increased, such as 3% on U.S.-dollar charges made outside the U.S., or a fee if you don't use your card for a certain length of time. Many existing fees have been increased. Discover Financial
(NYSE:DFS), for example, is reportedly going to a 5% balance-transfer fee next month. Transfer $6,000, pay $300. Ka-ching, ka-ching for credit card companies!
For cardholders, some of these changes are certainly depressing. And it affects nearly everyone. According to creditcards.com, 78% of American households (about 91 million) had one or more credit cards at the end of 2008. Permit me one last statistic, because it's amazing: There are almost 1.5 billion cards in use in America, enough to reach more than 70 miles into space, if stacked, and to be taller than 12 Mount Everestes!
But for credit card company investors, fans of good old American ingenuity, and admirers of the resourcefulness and adaptability of capitalism, this news should be encouraging.
So keep tabs on your companies and the regulatory reforms they may be facing. Make sure they won't be rendered far less profitable by them. And with your own credit cards, keep a close eye on changing terms and, if need be, seek a better card. Use the how-to guide on credit and debt that The Motley Fool has put together for lots of information.
Get smart (or smarter) about the credit card industry and your own debt:
Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. The Fool owns shares of UnitedHealth Group, which is a Motley Fool Stock Advisor recommendation. Discover Financial, UnitedHealth Group, and WellPoint are Motley Fool Inside Value recommendations. Try any of our investing newsletters free for 30 days. The Motley Fool is Fools writing for Fools.