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By Jeremy Glaser | 08-26-2009 02:22 AM

Credit Cards Can Thrive Despite New Regulations

Banking Analyst Michael Kon thinks that credit card companies can counteract new regulations by raising fees and tightening lending standards.

Jeremy Glaser: I'm Jeremy Glaser, with Morningstar.com. Credit cards have been in focus recently as new legislation looks to clamp down some of the excesses of the credit card companies and there's been a lot of talk of consumers starting to de-leverage their personal balance sheets and pay off some of these high-interest loans.

Here to discuss the industry with me is analyst Michael Kon. Michael, thanks for joining me.

Michael Kon: Thank you, Jeremy.

Glaser: So, what have been some of the big themes that you've seen from the credit card companies in the last few months?

Kon: Well, the credit card companies are preparing themselves for a new regulatory reality and basically what that means is higher fees, higher interest rates. In addition to that credit card companies have to deal with high unemployment rates and a consumer that is under pressure, so they have to adjust their underwriting standards and their portfolios to deal with the economic environment.

Glaser: So, what does the default rate look like on these credit card portfolios?

Kon: Well, credit card default rates are reported on a monthly basis and in fact we've seen some encouraging signs of improvement over the past few months. Credit card delinquencies have been rising throughout '08 and early '09 but then around March and April we've seen a few companies reported declining delinquencies. Then American Express, at their analyst day, implied that we might have passed peak in credit card losses.

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