If the Consumer Financial Protection Bureau follows through on a proposal to
Synchrony, which issues co-branded cards and shares late fees with its retail partners, would lose a larger chunk of its revenue than competitors such as Capital One Financial and Discover Financial Services, according to an estimate earlier this year by analysts at Jefferies.
But the Stamford, Connecticut-based company has been looking for ways to recoup at least some of the revenue that it will lose if the CFPB's plan takes effect. On Monday, Synchrony Chief Financial Officer Brian Wenzel provided new details about how pricing might change in that scenario.
"I think we're probably heading into what I'd say is a more definitive period of time, where we've kind of identified the exact things we may do," Wenzel said during remarks at a Morgan Stanley conference. "It's not necessarily going to be in one flavor, given the size of what the CFPB is proposing."
Wenzel identified three specific ways that Synchrony might change its pricing. But he also acknowledged that the company's ability to collect more money from struggling borrowers will be constrained by a 14-year-old federal law that put various restrictions on the industry.
One potential method to recoup lost late-fee revenue would be to impose other fees. Wenzel said those charges could include annual fees, but he also alluded generally to the possibility of other kinds of fees.
Under the CARD Act of 2009, card issuers cannot collect upfront fees that add up to more than 25% of the available balance in the first year.
A second way that Synchrony could recoup lost revenue would be to raise annual percentage rates, though again Wenzel did not provide details about how such a plan might work.
The third option on the table at Synchrony is to find new ways to use pricing to deter late payments. Penalty-based pricing would be one way to do so, though the CARD Act puts restrictions on the ability of card issuers to implement that strategy.
"So if someone gets late, you change the interest rate," Wenzel said before acknowledging that Synchrony would have to account for provisions of the CARD Act.
Under the 2009 law, card issuers generally cannot raise interest rates on existing balances until the customer is at least 60 days past due.
In its most recent annual report, Synchrony said that CARD Act restrictions have resulted in reduced income from interest and fees.
"The CARD Act's restrictions on our ability to increase interest rates on existing balances to respond to market conditions and credit risk ultimately limits our ability to extend credit to new customers and provide additional credit to current customers," Synchrony said in its annual report.
Chi Chi Wu, a senior attorney at the National Consumer Law Center, which supports the CFPB's late-fee proposal, acknowledged that Synchrony may try to find ways to recoup the revenue it loses if late fees get cut to $8.
But, pointing to the CARD Act's restrictions, she added: "That only works up to a certain point."
Under the CFPB's proposal, card issuers would have to seek approval from regulators if they want to charge more than $8 per late fee. The regulators currently allow issuers to charge $30 for first-time late fees and $41 for subsequent missed payments.
In January, Synchrony executives said
Banking groups have argued that the CFPB proposal would blunt a key tool for deterring tardiness.
On Monday, Wenzel argued that the proposed rule would cause a contraction of credit to individuals who have a relatively high probability of defaulting. He also said that it would lead to higher pricing for a broad range of customers.
"This was probably the most transparent fee to a consumer," Wenzel said.
