Card Giants Ease Over Fed Rulings - Analyst Blog
05 Ottobre 2011 - 10:15AM
Zacks
Lobbying charges for Visa Inc. (V),
American Express Co. (AXP), MasterCard
Inc. (MA) and Discover Financial Services
(DFS) witnessed a decline for the second quarter of 2011,
reflecting reduced anxiety over financial overhaul reforms. All the
card giants lobbied the federal government over the recent
regulations.
Early this week, Visa, Discover Financial, MasterCard and AmEx
reportedly spent $1.44 million, $0.2 million, $0.77 million and
$0.61 million, respectively, in the second quarter of 2011.
Lobbying costs for Visa declined 6% year over year and 20%
sequentially, the same for Discover decreased by 29% year over year
and 44% sequentially. On the flip side, American Express’ lobbying
costs dipped 3% year over year but were flat sequentially.
Furthermore, lobbying charges for MasterCard reduced drastically
from $2.33 million in the year-ago quarter and from $0.93 million
reported in the sequential quarter.
Lobbying Details
Visa, MasterCard and AmEx lobbied the federal government for
multiple issues but primarily over the recent reduction on the
interchange fees charged on debit card transactions.
The Dodd-Frank Act signed in July 2010 limited the interchange
fees that card issuers charge merchants for using the card, which
constitute a major component of card issuers' revenues. These
issues have been concerning the card giants, thereby impelling them
to lobby for them.
Furthermore, after six months of discussions, the Federal
Reserve (Fed) capped the interchange fee at 21 cents per debit
transaction in July this year, drastically down from the average of
44 cents.
This in particular is a significant cause of concern for Visa
since most of its revenue is generated from the debit card
business. The company processes the largest number of debit
transactions in the US.
In the April-June period, Visa and MasterCard took the federal
government into its confidence regarding the regulation of consumer
financial products, interchange fees, online payments, data
security, and internet gambling, among other issues. Overall, the
company lobbied the Congress, the Federal Reserve and the Treasury
Department.
American Express also contacted with the Postal Service and the
Internal Revenue Service on credit card regulations, fees charged
to merchants for accepting card payments and the creation of a
consumer protection agency. The consumer financial protection
lobbying issues are primarily related to reloadable prepaid cards,
patent reform, tax reform and reform of the US Postal Service.
Meanwhile, Discover took help of the House of Representatives
and the Senate on similar issues related to credit card lending,
regulation of the fees charged to merchants for processing
transactions and the financial regulatory overhaul.
Nitty-Gritty on Financial
Reforms
The sweeping new Dodd-Frank Act was enacted to enforce greater
regulation on banks and capital markets following the 2008-09
financial meltdown and to protect consumer interests. The Act
entails new fees and limits on the card companies, modifying the
interest rate hike, charging over-the-limit fees and the banks’
requirements to apply payments to higher-rate balances.
Apart from this, the law has imposed new restrictions on the
$450 trillion derivatives market, and developed a new
consumer-protection division for mortgage and credit-card
products.
Although, major repercussions of the financial reform are
expected to be felt in the long term, it has already started to
influence our cautious outlook on the card giants. Though the new
rules will protect credit card users from unreasonable late payment
fees, interest rate hikes and other penalty fees, they could
adversely affect the profitability of these major card issuers.
Nevertheless, we believe that all the four card giants discussed
above are fundamentally strong stocks and are expected to deliver
well with the market stability.
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