American Express Company AXP seems to be acting fast, in order to take advantage of the Consumer Financial Protection Bureau’s updated guidelines that increased the maximum penalties for credit card late fee by $1 to $38.
According to the website of American Express, beginning Jan 2017, the NY-based company is set to charge up to $38 to its customers, if they make more than one late payment in a six-month period. Also, the company stated that if customers fail to make timely payments for two billing periods in a row, the late fee will be $38 or 2.99% of the past due amount, whichever is greater. However, late fee stays at $27 when customers fail to make timely payment for the first time.
The news, first reported by The Wall Street Journal on Friday, quoted the company saying, “There are business costs associated with not paying on time, and late fees are intended to recapture some of that cost.” The company further mentioned that “a very small number” of customers miss two payments in a period of six months.
The Credit Card Accountability Responsibility and Disclosure Act of 2009, or the CARD Act, made significant reforms tied with card issuers' practices and consumers' rights. The act called for greater transparency and clear terms, along with restrictions on certain types of credit card fees, including late fees.
Notably, citing data of R.K. Hammer Inc. – a privately held bank card advisory firm – The Wall Street Journal report stated that credit card companies recorded $11.4 billion in penalty fees in 2015, plunging by around 50% from 2009.
American Express becomes the first major issuer to act on federal government's updated rules. The maximum late fee for Citigroup Inc. C, Discover Financial Services DFS and JPMorgan Chase & Co. JPM currently stands at $37.
The latest move should boost American Express’ revenue growth to some extent, amid its several challenges, including high loan loss provisions, stiff competition and loss of Costco, a major client.
American Express carries a Zacks Rank#3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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