Credit card debt companies will face difficulties with profits

11/13/2009

The market for credit card debt is going to continue facing both short- and long-term problems, especially as lenders work to deal with a new consumer credit protection act.

According to Fitch Ratings, despite unemployment growth and credit card losses being moderated during the third quarter, the fact that the number of delinquencies remains high means that profits for lenders will be more difficult to come by.

In fact, unemployment saw an increase to 10.2 percent in October, which could lead to more consumers having a hard time when they try to pay off debt. Furthermore, impending regulations from the Credit Card Accountability, Responsibility and Disclosure Act will make it harder for card companies.

The Credit CARD Act will make it more difficult for lenders to change rates on credit cards, and would also require card companies to review rate changes. The second set of regulations from the act are slated to take effect in February 2010.

"Ultimately, the impact on the longer-term profitability potential of the credit card product will have a lot to do with competitive reactions to the legislation," the Fitch Ratings report stated.

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