Dimon: 15% of Chase credit-card prospects now "too risky"

Consumer Reports News: April 14, 2010 03:03 PM

What are the real-world effects of credit card reform provisions that became effective nearly two months ago? In his recently released letter to shareholders, Chase CEO Jamie Dimon provides some interesting nuts and bolts details on how the credit card giant has changed how it's dealing with consumers.

Dimon says because the new law makes it harder to raise interest 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."

Translation: The gravy train of luring customers with zero-rate introductory offers and then jacking rates up to sky-high penalty rates at the drop of a hat is over.

The "drastic changes" he cites include:

• Chase no longer will be offering credit cards to about 15 percent of the customers who currently receive 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," Dimon explains.

• Chase cut outstanding balances by $20 billion merely by reducing its low introductory rate or balance transfer offers.

• Chase cut cardholders' credit lines and also canceled credit cards for customers who hadn't used their cards for "an extended period." Though he acknowledged that doing this in the midst of a recession "did reduce a source of liquidity for some people," he says the changes will make business better and more stable for the card business in the long run.

Not that Chase was struggling much in the wake of the economic meltdown. Reporting first-quarter earnings today, JPMorgan Chase, which has been fighting efforts to create a Consumer Financial Protection Agency, noted its income rose 55 percent to $3.3 billion. Its credit card unit, Chase Card Services, lost $303 million, but that actually was a 45-percent improvement over the prior year, and Dimon predicted it would be profitable by year-end.

Dimon's letter also notes that Chase's 2009 revenue was a record $100 billion, up from $67 billion in 2008. Profits for last year were $12 billion, double 2008's $6 billion, but down somewhat from $15 billion in 2007.—Andrea Rock

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Dimon: 15% of Chase credit-card prospects now "too risky"

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