Bank Of America Vows Not To Hike Card Rate

Bank of America Corporation (BAC) said on Tuesday that it will not raise rates or change terms on consumer credit card accounts before the new law (CARD Act) intended to reform industry practices takes effect early next year.

To manage costs in light of the sweeping new reforms to the credit card industry, in August 2009, BofA along with JPMorgan Chase & Company (JPM) switched most fixed-rate cards to variable rates. Discover Financial Services (DFS) moved some of its cardholders from fixed to variable rates in June.

Since most of the cards of Bank of America carry a variable rate, customers could still see rising interest rates as the interest is tied to the rise and fall of the prime rate.

BofA also said that it will continue to re-price customers who are late on two or more payments in a one-year period.

The CARD Act will restrict credit card issuers to raise fees and interest. As a result, many companies have started increasing charges and rates in the recent months. However, Bank of America said that it will not implement any change in terms of consumer credit card accounts between now and the effective date of the Act. Last month, U.S. Representatives Carolyn Maloney and Barney Frank introduced a legislation that could speed up the implementation of new credit card rules to December 2009.

The new CARD Act will negatively impact major credit card issuers including JPMorgan Chase & Company, Citigroup (C), Capital One Financial Corp (COF), American Express Co (AXP) and Discover Financial Services.

We think that the management of Bank of America is quite confident about its capital position as it has indicated paying back TARP funds in installments. We anticipate continued synergies from the company’s large scale operation and balance sheet restructuring, but higher credit costs and worsening credit quality will be a drag on upcoming results. Therefore, we recommend the shares as Neutral.

Subscribe by RSS Subscribe by Email