Lobbying Charges Shrink for Visa - Analyst Blog

On Friday, Visa Inc. (V) reported that it spent $1.12 million during the first quarter 2010 on issues related to credit card regulations. The lobbying charges were down 27% from the $1.54 million spent during the first quarter of 2009 and declined 30% from $1.6 million spent in the fourth quarter of 2009.

 

Visa lobbied Congress, the Federal Reserve System and Federal Trade Commission for multiple issues such as credit card regulations, fees charged to merchants for accepting card payments and the creation of a consumer protection agency.

 

The credit card regulations were enforced by The Credit Card Accountability, Responsibility and Disclosure Act of 2009, known as the CARD Act, which was passed by Congress on May 22, 2009. It included several provisions aimed at regulating the fees levied on customers by credit card companies such as Visa.

 

This financial reform restricts Visa and its peer group from raising interest rates on existing balances, and caps the late payment fee at $25 and the penalty fees charged by them. In contrast, it provides credit card users with more time to pay their monthly bills, regular advance notice of changes in credit card terms and the right to opt out of significant changes in terms of their accounts.

 

Visa also lobbied for the interchange fees that card issuers charge merchants for using the card. This forms a major component of card issuers' revenues.

 

 The Act aims at protecting the average consumer. However, we believe that this law is expected to eat into the profits of major card issuers such as Citigroup Inc (C), Bank of America Corp (BAC), JPMorgan Chase & Co (JPM) and Capital One Financial Corp (COF), as issuing credit now at a rate suited to customers’ risk will be a complex process.

 

Additionally, the Act is expected to make credit cards costlier and inaccessible for low-income families and consumers with bad credit. Also, the CARD Act’s restrictions on finance charges and fees have resulted in reduced interest income and loan fee income. This is expected to put continuous downward pressure on the yield of Visa and its peer group with the implementation of the CARD Act, which partly started on February 22, with the rest expected to take effect from August, 2010.