Industry participants said they expect issuers to change their internal systems and billing operations, introduce replacement products or even sell their card businesses.
Issuers said last week that they will also adjust to the new reality with more of the by-now familiar strategies: higher interest rates, tighter credit, fewer reward programs and possibly more annual fees.
But clearly the legislation shook the industry's foundations, and issuers now must find some way to make up for the revenue they will no longer be collecting.
"The credit market will be smaller, more defined," Ric Struthers, Bank of America Corp.'s president of global card services, said in an interview Friday. "The fundamentals of making a credit decision — ability, stability and willingness to pay — there will be a lot more focus across the industry on those attributes and making the right choices of which customers you extend credit to. It's going to be a smaller market, but it still will be a very profitable market."
One major issuer has already hinted that it may drop out, in part because of regulatory pressures.
"This business clearly faces financial headwinds in these difficult economic times, as well as regulatory pressures," HSBC Holdings PLC's chief executive, Michael Geoghegan, told shareholders Friday. "If these become too strong, and we are not able to leverage this business more fully on a group basis, we may have to rethink" keeping the London company's U.S. credit card operation. Nevertheless, "in the meantime, we believe that unless there is further significant deterioration, the assets in this business can ride out the storm."
A spokeswoman for HSBC's U.S. card unit said by e-mail Friday, "HSBC remains committed to the U.S."
Chris McWilton, the president of U.S. markets for MasterCard Inc., told analysts last week that the legislation will "radically impact the way credit card companies operate, how they price, how they manage for risk, how they market."
It will also affect more "mundane things" for issuers, like "how they bill," he said. "Seventy to 80% of their IT capacity is going to be just keeping up with regulation. … This will change the dynamics of their business models in dramatic ways."
Issuers agreed that the law will require realloting some resources to reorganizing their internal systems.
"The big challenge here is changing all of these systems to accommodate these new rules," said Scott Wagner, the executive vice president of Town North Bank's card services unit. "Some of the systems that are out there that process these transactions don't have the capabilities to do what these regulations are calling for."
Among other things, the law will add a slew of disclosures designed to caution cardholders about the consequences of making only minimum payments by highlighting how long it would take to pay off balances and showing how much interest would get tacked on.
Wagner said those disclosures will require the most effort and investment on the part of both issuers and their processors. Town North Bank, which is selling its issuing business but would continue to process transactions for 400 credit unions, has more than 10 people "that are working on this project, just understanding the changes and the systems that have to be modified."
