Chase Cites ‘Drastic’ Reform-Related Credit Card Actions

Chase CEO Jamie DimonJPMorgan Chase, the top general-purpose credit card issuer, made some “fairly drastic changes” to its card policies before sweeping new laws took effect Feb. 22, including no longer offering cards to 15 percent of customers deemed “too risky.”
Chase Chief Executive Officer Jamie Dimon outlined the impact of the Credit CARD Act to the banking giant’s card business, defending widespread criticism from customers, consumer advocates and lawmakers over the past several months. The criticism involved actions by Chase and other issuers that included closing accounts, raising interest rates and reducing credit limits.
“We believe that many, but not all, of the changes made were completely appropriate,” Dimon said in his annual letter to shareholders released yesterday.
Dimon said the reform laws and Chase’s policy modifications are expected to reduce after-tax income by about $500 million to $750 million – “but this could possibly change as both consumers and competitors change their behavior.”
The laws provide landmark consumer protections against retroactive interest rate hikes, and excessive or unfair fees.
“However, because the new law makes it harder to raise rates on customers who have become far riskier and because all payments now must go toward reducing users’ highest rate balances (vs. lower-rate balances), we and other competitors have had to make some fairly drastic changes in the business,” Dimon said.
Here’s Dimon’s list of those changes:
• Substantially reduced very low introductory or promotional balance transfers. “This change alone reduced our outstanding balances by $20 billion.”
• In the future, Chase will no longer be offering credit cards to “approximately 15 percent of the customers to whom we currently offer them. This is mostly because we deem them too risky in light of new regulations restricting our ability to make adjustments over time as the client’s risk profile changes.”
• Reduced limits on credit lines, and canceled credit cards for customers “who had not done business with us over an extended period.”
Dimon added that the industry as a whole reduced limits from a peak of $4.7 trillion to $3.3 trillion in response to the new laws.
“While we believe this was proper action to protect both consumers and card issuers, doing so in the midst of a recession did reduce a source of liquidity for some people,” Dimon said. “Ultimately, however, the change may make the card business a more stable and better business.”

2 thoughts on “Chase Cites ‘Drastic’ Reform-Related Credit Card Actions

  • April 1, 2010 at 3:15 pm
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    How is this going to help out people?

  • April 16, 2010 at 1:26 pm
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    How is it ok to close people’s accounts because of inactivity? Often times, people’s need for credit comes unexpectedly. So you’re saying you’re planning to take people’s credit away before they actually need it?
    How very disturbing. I’ll go ahead and close any account I have with Chase.

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