Wait in line oil companies, now serving Cap One

November 2, 2006 at 6:35 pm Leave a comment

Business Week, yesterday, featured an article talking about Capital One’s savvy approach to increase profits. Much of the profits credit card issuers make is from fees of course. So, how are they different from other issuers? Let’s take a look.

According to this article, “Cap One…is simply aiming to maximize fee income from debtors who may be less sophisticated and who may not have many options because of their credit history. By offering several cards with low limits, instead of one with a larger limit, the odds are increased that cardholders will exceed their limits, garnering over-limit fees. Juggling several cards also increases the chance consumers may be late on a payment, incurring an additional fee. And if cardholders fall behind, they pile up over-limit and late fees on several cards instead of just one.”

It’s safe to say that most consumers are unaware of this practice. William Ryan, an investment analyst at Portales Partners, stated that Capital One’s earnings would take a huge hit if regulators cracked down on fees and multiple cards. That doesn’t appear to be likely though. Not soon enough anyway.

Of course, some like Ronald Mann, a card-industry expert, say that by generating growth revenue from late and over-limit fees credit card issuers are able to offset bankruptcy filings by card holders. Really!?

Do you think Capital One is targeting “subprime” borrowers to overfill their wallets? Or, is Ronald Mann right?

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Entry filed under: Credit Cards.

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