The financial services industry continues to struggle with replacing the revenue lost through the Dodd Frank financial regulatory reform legislation. Since the major banks have to get out of prop trading, and now have limits on overdraft fees, merchant charges, and a myriad of other issues, the banks are scramble to find new ways to drive profits.
Bank of America (NYSE: BAC), the largest US bank when measured by deposits and also one of the largest U.S. credit card issuers, plans to start charging penalty interest rates for credit card customers who miss payments. The new policy will begin on June 25 of this year, and the bank will begin charging a penalty rate of as much as 29.99 percent to customers who make late payments on their credit card balances, a company spokeswoman confirmed on Tuesday. The rules are tricky on this, as credit card companies do face a cap on interest rates that they can charge, but this circumvents that measure in a way. Unlike a wholesale interest rate increase, borrowers would be charged the penalty rate only on new purchases after the rate is changed, and a customer will receive 45 days advance notice of any penalty rate being placed on their account.
The bank has not had a penalty interest rate on its credit cards since the industry was overhauled by Congressional legislation in 2009. The Credit CARD Act restricted the fees lenders could charge their customers and their ability to raise interest rates. Although this move will certainly anger the customer base, they are not the first one to do it. In fact, most U.S. credit card lenders like JPMorgan Chase (NYSE: JPM), and Wells Fargo (NYSE: WFC) have had similar programs since the CARD Act was adopted.
Robert Hammer, who brokers card portfolio sales as head of R.K. Hammer Investment Bankers commented “There’s this fine line BofA and everybody else has been walking: what can we reasonably charge.” BofA spokeswoman Betty Riess said a missed payment will not automatically trigger the penalty rate, and an account will be reviewed before it is implemented. She went on to comment that “We are committed to providing our customers with the clarity, choice and control they need to understand and manage their bank accounts.”
Bank of America’s card unit — which includes debit and credit cards — recently reported that revenues declined 17.6 percent to $5.6 billion in first quarter 2011 from $6.8 billion a year ago.