Mr. Shane: I think the industry is still trying to figure that out to some extent. I think the long-term implication is that issuing credit cards in United States is probably going to be a bit riskier and potentially less profitable. The reason I say that is that one of the strategies the card issuers historically have used, and I would think Capital One has been the most clear example, is to offer credit fairly broadly to consumers, make credit available and then once the consumer is part of your portfolio, really analyze their behavior and figure out to how to best provide them with credit. That may be offering a wide variety of consumers loan line limits, introductory rates, seeing how they perform and then if they're high-quality consumers who are managing credit responsibly, continue to offer them low rates and increase their line limits. Conversely, if it's consumers who turn out to be risky, manage their line limits down, but at the same time reprice them, so that you as lender are being compensated for taking that risk.
TWST: I gather that under the new legislation, you really can't do that anymore
or not as easily.
Mr. Shane: Certainly it is much more difficult to reprice consumers. There are
going to be a number of restrictions. You can't just reprice a consumer, if that
consumer is performing well in your portfolio, based upon his behavior away from
you - if you see risk based on credit reports associated with other lenders. You
do lose the ability to unilaterally reprice. In addition, if that consumer has a
misstep within your portfolio, it is also harder to reprice. I think there are a
couple of different consequences. The first is that issuers in anticipation of
these new rules are repricing their portfolios. They are basically recognizing
that down the road, they're not going to have that opportunity, so they are
proactively adjusting rates as we speak.
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