Card industry penalty fees for 2016

THOUSAND OAKS, CA (January 9, 2017) — In its annual year end summary of card metrics, this week’s R.K. Hammer release is for Card Industry Penalty Fees during 2016.

Penalty fees in the R.K. Hammer model is all non-interest operating income, the vast majority for late fees on delinquent payments. Penalty fees in the Hammer reports does not include “Penalty Pricing,” as that would be reported in interest income (i.e., higher APR’s for habitual late payments; 2 or more 30+ DPD, and one or more 60+ DPD ).

Penalty Fees for 2016 calculated by R.K. Hammer were $12.0 Billion, up from $11.5 Billion during 2015.

This upward trend in penalty fee income is a polar opposite departure from the previously reported annual Y/Y decrease for the prior seven years since the CARD ACT implementation. At its peak in 2009, the penalty fee “revenue wave” for cards rose to $22.9 Billion; then falling every year since, until 2016. The “reasonable and proportional” provisions of the CARD ACT permit late fees of $25, unless the cardholder has another missed payment in the following six billing cycles, which permit issuers to raise the subsequent late fee up to $35 per event. Prior to 2009, the previous standard for late fees was $39 per event for many issuers.

Forecast for 2017: If the post-recession recovery continues without interruption, we expect penalty fees to stabilize at its present level; if, however, an economic downturn does occur soon, penalty fees for consumers’ cards will increase again, particularly late fees on a then rising number of delinquent accounts during the downturn. Stock and real estate values slipping downward, and unemployment – true unemployment, not the monkeyed figures most often quoted – climbing again.

Given the 7-year long bubble we are in, a downturn seems likely in our opinion, but whether in 2017 or later is simply unknown precisely as this is written. We see the chance of such a downturn at 30% this year, with a 70% chance thereafter, during 2018. The longer the bubble remains, though, the deeper the fall will be when it occurs and ripples throughout the U.S. economy.

About R.K. Hammer

R.K. Hammer is a veteran card industry advisor based in Thousand Oaks, CA, for over 30 years specializing in card portfolio valuations, second opinion valuations and card portfolio sales and purchases in over 150 card transactions, expert witness work for card issuers in litigation, card portfolio interim management, and general best practices consulting; domestic and international in 50 countries.


Bob Hammer
Founder & CEO

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