FEB. 27, 2017 – NEWS RELEASE

“New Regulatory Costs – Impact Per Year”

R.K. HAMMER                                          Bob Hammer, Founder and CEO



Five years ago we undertook a study of what the possible costs of new regulation and legislation might be for Debit card Interchange swipe fees and the earlier 2009 CARD Act.  Our estimate at the time was $26.2 Billion every year in gross lost revenue for the card industry.  That number still seems about right.

Don’t get us wrong, we believe that some of what was intended was very useful, that card fees needed better more transparent disclosure, what we often coined at the time “The Educational Card Act.”  And in the years since enactment, we still believe much of what was intended produced some favorable and important consumer education. 

There have also been unintended consequences of these regulations and legislation. Our assertion today is that every action (read, Regulation and Legislation) produces an industry reaction (new and higher fees) to help offset some of the cost of compliance with those new rules and regulations.  It’s just “Economics 101.” 

The jury is still out as to how much new card fees will partially offset the annual cost of these regulations, but there already have been and will continue to be new consumer card fees, an financial institutions seek ways to offset the cost of new regulation and legislation. Some estimates of new/increased card fees so far are one-third of what the lost revenue is each year, or $8.6 Billion per year.  That figure will rise in the future since most issuers are going through extensive due diligence on what services are being provide free of charge, and what could be assessed if they chose to do so.

We recognize that some issuers use cards as a cross sell to other important products in their suite of customer services, and therefore may not elect to raise or charge new fees.  Others most certainly will as they treat cards not as a loss-leader but as free-standing profit center.  In fact the card business is often the most profitable product at many organizations, in terms of ROA, ROE, and IRR, and EBIDTA.

Robert Hammer is Founder and CEO of R.K. Hammer and Card Knowledge Factory ® the research and analysis division at R.K. Hammer, and a registered trademark of the Company.