May 28, 2009
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News: Capital One New Expectations
Capital One Financial Corp.'s (COF) Chairman and Chief Executive Officer, Richard Fairbank, says the company has a positive outlook and expects to do very well under the new credit card reform bill. Mr. Fairbank stated that the company has avoided some of the unfair practices that the bill will now restrict. They expect it to become a level playing field. Despite the positive outlook for the long run, the company expects to have some losses as credit card defaults continue to rise. Fairbank speculated that there could be a rise in the financial industry income before February 2010 when the bill takes effect. Banks could very well participate in some re-underwriting and repositioning of credit card accounts in anticipation of the new law which would add to the temporary income increase.
Mr. Fairbank also added that the new law will create a "negative shock to industry revenues" for the 2nd quarter 2010. The greatest contribution will be the restrictions to increasing interest rates for existing credit card customers. Additionally, it is expected that Capital One will lose a great deal of revenue from the new legislation's ban on automatic overdraft charges and penalties. At this point, it is difficult for the company to determine just how much will be lost and when it will begin to level off. Overall, Mr. Fairbank says Capital One is really looking forward to the implementation of the new credit card Act. Basically because the company has been hurt because it has refused to follow some of the industry's marketing standards. Unlike other banks, Capital One did not offer the 0% transfer offers nor did they use an interest calculation system that lead to double cycle billing.
The new law now requires banks to write credit card contracts based on the consumer's ability to pay. This will be helpful to Capital One because they have been issuing credit in this manner all along helping them to fare better than their competitors during this past quarter. The company's proprietary model which is used to calculate interest rates and limits will give Capital One the competitive edge in complying with the new regulations.