JPMorgan Chase & Co. expects its credit card income to drop by up to $750 million because of recent regulations -- and a lot of customers will get cut off as a result.
In his annual letter to shareholders released late Wednesday, CEO Jamie Dimon said the New York-based bank expects a $500 million to $750 million hit from the credit card reforms that took effect Feb. 22 prohibiting what he referred to as "certain practices that were not considered consumer-friendly."
The law bans moves such as changing interest rates on existing balances, and charging over-the-limit fees without customer permission.
"We believe that many, but not all, of the changes made were completely appropriate," Dimon wrote. He noted that before the law was enacted, Chase eliminated some of the now-illegal practices, like universal default, where card rates would rise if a payment on an unrelated bill was late.
However, the law's prohibition on existing balance rate hikes, and the provision that requires all payments be applied to the highest interest rate balances prompted a response. The bank reduced credit lines and canceled cards customers hadn't used for an extended period, for instance.
Chase also sharply cut the number of offers featuring low introductory rates and promotional rate balance transfers, which alone reduced outstanding balances by $20 billion, Dimon said.
The bank also will no longer offer cards to 15 percent of its current customers. "This is mostly because we deem them too risky in light of new regulations restricting our ability to make adjustments over time as the client's risk profile changes," Dimon wrote.
Future growth in Chase's credit card business will depend on product innovation, Dimon said. He pointed to recent introductions, like its Sapphire card for affluent consumers and its Ultimate Rewards program as examples, along with Blueprint, Chase's online program for card customers to manage their spending and borrowing.
"By all measures, 2009 was a terrible year for our credit card business," Dimon wrote. Charge-off rates, the amount of card debt the company had to write off as uncollectible, reached 8.5 percent, an all-time high. But while poor, that performance was better than competitors, he said.
The bank's card services division posted a net loss of $2.2 billion for the year, compared with a $780 million profit in 2008.
On the positive side, Chase's market share for cards improved. It now has more than 145 million cards in circulation, with $163.4 billion in outstanding balances.
In afternoon trading, JPMorgan Chase shares added 44 cents to $45.14. The stock has changed hands between $25.29 and $47.47 in the past 52 weeks.
(This version CORRECTS Corrects profit from card business in 2008 to $780 million, sted billion; UPDATES stock price)