Lender Whining About Credit Card Act Unmerited

Despite a fair amount of whining from the big banks, which felt they'd be adversely affected by the Credit Card Accountability and Disclosure Responsibility Act (or CARD, for short), the consumer protection bill went into effect last week. And, despite doomsday forecasts, the credit card lending engine didn't explode.

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So just how bad will it get? How much of a hit will the likes of Bank of America (NYSE:BAC) and Citigroup (NYSE:C) take now that the CARD act has wiped away this apparently massive amount of fee revenue? Despite the worries voiced by the industry (in frequency and volume), the actual impact is strangely small.

A Drop in the Bucket
The estimated amount of lost revenue stemming from the CARD Act varies from bank to bank, but the big four paint a pretty complete picture for the industry.

The nation's biggest lender, Bank of America, now expects to miss out on up to $800 million in credit card fees annually. Ouch. The thing is, that's not really a ton of dough. It's less than 1% of the $150 billion the company generated in revenue over the prior 12 months.

Even taking the whole amount right off the bottom line isn't deadly. In a normal environment (pre-recession), Bank of America was earning in the $20 billion per year range, so that $800 million is only about 2.5% of the lender's historical profit levels.

As for other big banks, Citigroup anticipates losing around $500 million in revenue thanks to the CARD act. Rough? The number is big to be sure, but not that big. That's only about 1% of last year's pro-forma revenue of $48.9 billion, and will only amount to about 5% of my estimated $10 billion in operating income for Citigroup in 2010 (which I'm basing on pro-forma operating income for 2008 and 2009). That's not chump change, but it's not devastating for a company this size.

JPMorgan Chase (NYSE:JPM) says it will lose between $500 million and $750 million in annual revenue as well - about 0.5% of total revenue, but about 2% of operating income.

One Fine Feint
While I don't want to dismiss anything that takes a dollar out of shareholders' incomes, I also can't dismiss the reality that these "lost fees" aren't the end of the world. By and large, the arguments against the CARD Act may have been more like indirect complaints that the days of the easy money in the credit card business were going bye-bye, an argument simply being made as a matter of principle/profits. Now, lenders will actually have to earn and justify the new fees they're already cooking up.

And in retrospect, I can't help but wonder if the loud threats of lost revenue were actually a distraction of sorts while the industry re-engineers its profit engine. If you own even just one credit card, odds are good you've already received updated account terms in the mail. Something tells me all of these lenders will land on their feet - except for one.

Capital One's Bad Luck
The three big leaders mentioned above aren't going to be severely punished by the Credit Card Accountability and Disclosure Responsibility Act because these companies didn't build their entire business around the idea of excessive fees.

Capital One (NYSE:COF), on the other hand, learned to like these fee-paying customers a little too much. Given Capital One's heavy exposure to customers with low credit limits - who tend to incur penalties and fees more than other credit card customers - the reform is expected to hit the company harder than other credit issues.

In fact, the company started to experience fee revenue losses in the latter part of last year when customers started staving off fees on their own, even before the CARD Act went into effect. The new law will likely make the problem worse before it gets better. (For related reading, take a look at Take Control Of Your Credit Cards.)

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