Visa Inc recently made a statement about the state of their business, and the credit card industry as a whole, going forward in light of the new credit card reform legislation that was recently signed into law.
Visa’s Chairman Joseph Saunders stated that the industry is going to have to take a good long look at itself and rethink the way it does business. He further opined that a result of the credit card reform act will be less credit being issued to less people. Most especially those with less than stellar credit ratings.
The credit card reform act will go into effect beginning in February 2010 and will be enacted in stages. Simply put, it outlaws the practice of raising interest rates on current balances, reigns in fees and eliminates small print.
The credit card industry is currently dominated by six financial institutions that include American Express, JP Morgan Chase, Capital One, Discover financial services, Bank of America and Citigroup. MBNA was a major player in the credit card market but was bought out by Bank of America about two years ago.
The credit card companies saw huge profits over the past decade as more and more Americans turned to their credit cards to fund their purchases. But now the tide has turned. The current economic recession and rising unemployment rates have put a damper on the credit markets as consumer’s thirst for spending has cooled.
Credit card issuers are in fact, losing money now in the billions of dollars because of the rising tide of defaults. As of March 2009, the cumulative debt that Americans owe on their credit cards totals $945 billion. That is up a full 25% from 1999. That’s almost $1 trillion in credit card debt. Truly staggering numbers when you stop to think about them.