Credit Card Issuers in Transition

NEW YORK (TheStreet) -- Bank of America's motivation for its recent move to tack on annual fees for a small percentage of its credit card customers is telling.

Unlike most of the other big issuers, the company has pledged that it won't be raising interest rates ahead of sweeping legislative changes for the credit card industry due in early 2010. But the decision to introduce annual fees for less than half a percent of its customers indicates it's not standing pat either. Instead, what BofA is essentially probing to see what works and what doesn't, for both it and its cardholders.

"What we're trying to do is get a better understanding of the value the customer places on the card," spokesperson Anne Pace tells TheStreet, adding later: "Right now, it's still too soon to tell what impact the new rules will have."

This approach could be the paradigm for card issuers over the next 12 months as they search for ways to mitigate an inevitable revenue hit. The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act is going to put in numerous protections for consumers, such as banning retroactive interest rate increases and requiring companies send bills earlier in order to cut down on late fees. A prime aim of the legislation is to lessen the estimated $15 billion in penalty fees that U.S. consumers pay card issuers each year, as a press release from the White House said in May when the CARD Act was signed into law by President Obama.

That's revenue that the banks are loathe to lose, especially considering the difficulties of the current business environment where unemployment has edged into double-digit territory, dragging charge-offs for many institutions along for the ride. The economy seems to have stabilized in recent months, but the issuers will continue to deal with the fallout from the financial crisis in the form of uncollectible debts for quite a while.

"It's clear that we won't be returning to 'business as usual' as we come out of this economic cycle," said Kenneth Chenault, the chairman and CEO of American Express (AXP Quote), during the company's October conference call to discuss its third-quarter results. "I believe we'll face a 'new normal' with a number of substantial changes."