J.P. Morgan Chase chief executive, Jamie Dimon, said in his annual letter to the shareholders that the credit card regulations that came into effect recently have negatively affected the company. He said the regulations hurt the company’s ability to offer credit to a large number of its customers.
Dimon said that the bank could end up losing as much as $750 million because of the CARD Act. He said that because of the new regulations, the company would not be able to offer credit cards to about 15% of its customers, as they were now deemed too risky. Moreover, many existing customers would see their credit lines reduced and some might even face cancellation of their card. The bank would also cut back on its promotional offers for new customers and for those transferring balance from another card.
The letter to the shareholders however supported some of the new regulations. Dimon said that he understood that some regulation was necessary to make the financial system more stable and reduce the risk to both companies and their customers.
However, he added that distinction had to be made for banks that are running their operations successfully without too much risk. He pointed out that J.P. Morgan hardly used any of the TARP funds that it took from the government, which showed that the company was doing well despite the recession, while some other banks were collapsing around it.
Some analysts rejected claims made in the letter, saying that regulation was absolutely necessary to make sure that we don’t have another financial crisis in the near future. They say that it was the banks’ responsibility to make sure that they were properly screening new customers for creditworthiness. This would help in reducing systemic risk in the financial industry, which would also be good for the banks.
The CARD Act has brought in a number of important regulations to curb aggressive tactics of banks, which put customers and the whole financial system at serious risk. One of the major changes is that banks would now be unable to arbitrarily increase interest rates for credit card customers.
Moreover, any payments made by the customers would be applied to the higher interest debt to make sure that banks cannot take undue advantage of customers’ ignorance. Although most banks would see reduced profitability because of the new regulations, they are seen as a vital measure for the stability of the system.