Magazine article American Banker

New Card Account Guidelines Carry Hefty Tab

Magazine article American Banker

New Card Account Guidelines Carry Hefty Tab

Article excerpt

MBNA Corp. on Wednesday said that complying with new account management guidelines proposed by bank regulators will cost it $200 million to $300 million.

The Wilmington, Del., company gave that estimate in its quarterly financial statement filed with the Securities and Exchange Commission, and in doing so became the first of the major credit card companies to stick a price tag on the guidelines. It said the fact that the exact terms of the guidelines have not been determined explains the $100 million difference.

The guidelines were issued in draft form July 22 by the Federal Financial Institutions Examination Council. The council planned to accept comments on the proposal until Friday, but on Aug. 8 it announced that interested parties were welcome to call regulators' attention to "fatal flaws" in the proposal until Sept. 22. The guidelines should go into effect shortly after that date.

Among other things, they will require that credit card banks carry reserves against uncollectable fee and finance charges. Banks currently can accrue uncollected fees and finance charges until an account is paid off or charged off, at which point any uncollected fees or charges are subtracted from income.

The changes are expected to affect all card issuers to some degree and those with high-risk portfolios the most.

The cost "is going to be varied across the sector, because the charge is specifically related to the FFIEC guidelines," said Douglas E. Ragnow, managing associate with Auriemma Consulting Group in Westbury, N. …

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