Good News for Credit Card Issuers -- and Consumers

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The credit (and debit) card world is a happening place. Though the Credit Card Act of 2009 -- and consumers' changing behavior -- are crimping card companies' style, investors still have much to be hopeful about.

Reasons to worry
The Credit Card Act has reined in late-payment fees, which could cost issuers more than $3 billion annually. Discover Financial Services ( DFS ) CEO David Nelms expects this change to cut $80 million to $90 million from his company's pre-tax income. The Federal Reserve is also looking into similar reforms for the debit card industry.

Meanwhile, watchdog Elizabeth Warren of the new Consumer Finance Protection Bureau aims to vastly simplify credit card agreements. Card issuers may no longer be able to hide unpleasant details in fine print.

Most notably, consumers are finally paying down debt. According to credit agency TransUnion, the average total debt for bank-issued credit cards was recently at $4,951, down 13% from year-ago levels. (That's also the first below-$5,000 number since 2002!) This is good for borrowers, but not so great for lenders, who kind of like the fat payments they receive from customers carrying a hefty balance.

Reasons to smile
All is not lost, though. The members of this creative and resourceful business are still finding ways to plump up their numbers.

For starters, they're casting a wide net for new customers. Odds are, you've noticed more new-card applications appearing in your mailbox lately. These mailings are up 83% over last year's level, according to a study from Synovate Mail Monitor, and that's just an average. JPMorgan Chase ( JPM ) has recently quadrupled its number of mailings, while Citigroup ( C ) has tripled its volume.

Minimum payment sums are also rising to bring in more revenue. This is actually a win-win development, since paying more can help borrowers dig out of debt faster. Perhaps most powerful of all, interest rates for borrowers have also increased, from an average of 13.1% in the second quarter of last year to 14.7% recently. (With overall interest rates at record lows, credit card issuers can reap phenomenal profits here.) Card companies have rushed through these increases ahead of new reforms taking effect this month, which will make such rate hikes more difficult.

If the credit and debit card business ever looked attractive to you, don't rule it out now. Despite its new challenges, the industry still has plenty of ways to generate revenue. You might also consider looking elsewhere for big profits -- there are plenty of other attractive businesses that aren't facing so much government scrutiny. Found a few that interest you? Keep track of them automatically by adding them to our new My Watchlist feature.

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Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. Discover Financial Services is a Motley Fool Inside Value selection. Try any of our investing newsletter services free for 30 days. The Motley Fool is Fools writing for Fools .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Personal Finance , Credit and Debt

Referenced Stocks: C , DFS , JPM

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