BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

Report to the Congress on the Profitability of Credit 

Card Operations of Depository Institutions

Submitted to the Congress pursuant to section 8 of the Fair Credit and Charge Card Disclosure Act 

of 1988

June 2010
Section 8 of the Fair Credit and Charge Card Disclosure Act of 1988 directs the Federal 

Reserve Board to transmit annually to the Congress a report about the profitability of credit card 

operations of depository institutions.1 This is the twentieth report. The analysis here is based to 

a great extent on information from the Consolidated Reports of Condition and Income (Call 

Report) and two Federal Reserve surveys, the Quarterly Report of Credit Card Interest Rates and 

the Survey of Terms of Credit Card Plans.

Call Report Data

Every insured commercial bank files a Call Report each quarter with its federal 

supervisory agency. The Call Report provides a comprehensive balance sheet and income 

statement for each bank; however, it does not allocate all expenses or attribute all revenues to 

specific product lines, such as credit cards. Nevertheless, the data may be used to assess the 

profitability of credit card activities by analyzing the earnings of those banks established 

primarily to issue and service credit card accounts. These specialized or mono-lined banks are 

referred to here as "credit card banks." 

For purposes of this report, credit card banks are defined by two criteria: (1) the bulk of 

their assets are loans to individuals (consumer lending), and (2) 90 percent or more of their 

consumer lending involves credit cards or related plans. Given this definition, it can reasonably 

be assumed that the profitability of these banks primarily reflects returns from their credit card 

operations.

The first credit card banks were chartered in the early 1980s; few were in operation prior 

to the mid-1980s. To provide a more reliable picture of the year-to-year changes in the 

profitability of the credit card operations of card issuers, this report limits its focus to credit card 

banks having at least $200 million in assets. Most of these institutions have been in continuous 

operation for several years, particularly those with assets exceeding $1 billion, and are well 

beyond the initial phase of their operations. 

As of December 31, 2009, 16 banks with assets exceeding $200 million met the 

definition of a credit card bank. At that time, these banks accounted for approximately 76

percent of outstanding credit card balances on the books of commercial banks or in pools 

underlying securities backed by credit card balances. Taken as a group, the average credit card 

related assets for the 16 credit card banks over the course of 2009 was virtually unchanged from 

2008. 

In 2009, credit card banks with assets in excess of $200 million reported net earnings 

before taxes and extraordinary items of -0.46 percent of outstanding balances adjusted for credit 

card-backed securitization.2

 1

 P.L. 100-583, 102 Stat. 2960 (1988). The 2000 report covering 1999 data was not prepared as a consequence of 

the Federal Reports Elimination and Sunset Act. The report was subsequently reinstated by law.

This is the first time credit card banks as a group experienced 

2 Calculations are adjusted for credit card backed securitizations because earnings as reported on the Call Report 

reflect revenues and expenses from outstandings both on the books of the institutions and in off-balance-sheet pools 

backing securities.
negative net earnings since this report series was initiated. Losses among the credit card issuing 

banks were driven primarily by the poor performance of the largest card issuers.

As Table 1 shows, returns for large credit card banks fell 189 basis points from 2008. 

More broadly, the 2009 rate of return is well below the average rate of return of 2.88 percent

since 1986. The decline in net earnings can be traced primarily to a continuing deterioration in 

credit quality; credit card delinquencies which have been rising since 2007, increased sharply in 

2009 and along with them provisions for loan losses and chargeoffs.

3

 

 3

 Both chargeoff and delinquency rates began to increase notably beginning around the middle of 2007. As of June 

2007 the chargeoff rate stood at 3.80 percent and the delinquency rate was 3.99 percent. Credit card delinquencies 

rose from 5.68 percent of outstanding balances as of the end of 2008 to 6.40 percent at the end of 2009. Chargeoffs 

rose from 6.37 percent to 9.50 percent over the same time period. Refer to

www.federalreserve.gov/releases/chargeoff/chgallsa.htm

Table 1. Return on assets, large U.S. credit card banks, 1986–2009

(Percent)

Year Return Year Return

1986 3.45 1998 2.87

1987 3.33 1999 3.34

1988 2.78 2000 3.14

1989 2.83 2001 3.24

1990 3.10 2002 3.28

1991 2.57 2003 3.66

1992 3.13 2004 3.55

1993 4.06 2005 2.85

1994 3.98 2006 3.34

1995 2.71 2007 2.75

1996 2.14 2008 1.43

1997 2.13 2009 -0.46

NOTE: Credit card banks are commercial banks with average managed assets (loans to 

individuals including securitizations) greater than or equal to 200 million dollars with 

minimum 50 percent of assets in consumer lending and 90 percent of consumer lending 

in the form of revolving credit. Profitability of credit card banks is measured as net pretax income as a percentage of average quarterly outstanding balances.

SOURCE: Reports of Condition and Income, 1986-2009.
Although profitability for the large credit card banks has risen and fallen over the years, 

credit card earnings have been consistently higher than returns on all commercial bank 

activities.4 2009 stands out because earnings at credit card banks were notably lower than for all 

commercial banks. For all commercial banks, the average return on all assets, before taxes and 

extraordinary items, was 0.12 percent in 2009, up 9 basis points from the 2008 level and 

substantially higher than the negative returns experienced by the large credit card banks in 2009.

5

One difficulty that arises in assessing changes in the profitability of credit card activities 

over time is that the sample of credit card banks changes somewhat from one year to the next

primarily because of mergers and acquisitions. Thus, overall changes in profit rates from year to 

year reflect both real changes in activity and changes in the sample. To evaluate the effects of 

sample changes, the profitability of the specific banks included in the sample each year was also 

examined for the prior year. For 2009 the level of reported profitability for the constant panel of 

banks is the same as that shown in Table 1. 

Changes from 2008 in overall returns to credit card operations can be better understood 

by reviewing how individual expense and revenue items changed relative to assets among the 

credit card banks in the 2009 panel.6

 4 This report focuses on the profitability of large credit card banks, although many other banks engage in 

credit card lending without specializing in this activity. Reliable information on the profitability of the 

credit card activities of these other banks is not available. The cost structures, pricing behavior and 

cardholder profiles, and consequently the profitability of these diversified institutions may differ from that 

of the large, specialized issuers. 

Interest income increased marginally and interest expense 

fell sharply over 2008 levels with net interest income increasing 90 basis points or 17 percent. 

Both noninterest income and noninterest expenses fell over 2008 levels; on net, noninterest 

income declined 144 basis points from 2008 levels. Much of the fall in average returns for credit 

card banks from 2008 to 2009 resulted from increased provisions for loan losses. Provisions for 

loan losses increased about 120 basis points or about one third from 2008 levels. Net chargeoffs 

increased about 235 basis points or about 77 percent over the 2008 level. 

 

In earlier annual reports on credit card profitability, information from the Federal Reserve=s Functional 

Cost Analysis (FCA) Program was used to measure the profitability of the credit card activities of smaller 

credit card issuers. These data tended to show credit card activities were less profitable for smaller issuers 

than for larger ones. The FCA program was discontinued in the year 2000. For further discussion, see 

Glenn B. Canner and Charles A. Luckett, ADevelopments in the Pricing of Credit Card Services,@ Federal 

Reserve Bulletin, vol. 78, no. 9 (September 1992), pp. 652-666.

5

 Refer to Seung Jung Lee and Jonathan D. Rose (forthcoming), "Profits and Balance Sheet Developments at U.S. 

Commercial Banks in 2009," Federal Reserve Bulletin, www.federalreserve.gov/pubs/bulletin/default.htm.

6 For another assessment of changes in credit card revenues and expenses, see Kate Fitzgerald, (May 2010) AAn 

Industry At A LOSS,@ PaymentsSource, vol. 23, no. 4, pp. 16-18. The author reports the industry experienced losses 

in 2009. Profitability estimates for 2009 are also provided in The Nilson Report. It is reported that the three largest 

issuers all lost money in 2009 and other large issuers experienced significant declines in profitability. Refer to The 

Nilson Report, March 2010, Issue 944. 
General Discussion

Thousands of firms offer bank cards to consumers and consumers use their cards 

extensively.

7 The Federal Reserve’s G.19 Consumer Credit report indicates that consumers 

carried a total of about $866 billion in outstanding balances on their revolving accounts as of the 

end of 2009, down about 9.6 percent from 2008.8 The decline in outstanding from 2008 to 2009 

reflects the financial crisis that emerged in 2008 and the ensuing recession that saw consumers 

reduce spending and creditors tighten credit availability.

Until 2009, credit card outstandings had grown every year since 1968, the date the 

Federal Reserve’s series on outstanding revolving credit card began.9 Consumers use their cards 

for purposes of borrowing and because they serve as a convenient payment device and standby 

line of credit for unforeseen expenses. As a source of credit, credit card loans have substituted 

for borrowing that previously might have taken place using other loan products such as closedend installment loans and personal lines of credit. As a convenient payment device, a portion of 

the outstandings reflects primarily convenience use that consumers intend to repay within the 

standard interest-rate grace period offered by most card issuers.

Prior to the early 1990s, card issuers competed primarily by waiving annual fees and 

providing credit card program enhancements such as airline mileage programs or other travelrelated benefits. Since then interest rate competition has played a more prominent role, although

for some market segments enhancements, particularly “reward” programs, are especially 

important in gaining market acceptance.

10

Until the recent financial crisis, many credit card issuers, including nearly all of the 

largest issuers, had lowered interest rates on the majority of their accounts below the 18 to 19 

percent levels commonly maintained through most of the 1980s and early 1990s. More 

generally, credit card interest rates have become more responsive to issuers' costs of funds in 

recent years as more issuers have tied the interest rates on their plans directly to one of several 

indexes that move with market rates. Recent changes in credit card rules (discussed below) that 

restrict the ability of card issuers to change interest rates on outstanding balances will induce 

more issuers to convert from fixed-rate to variable-rate plans. 

Issuers segment their cardholder bases according to risk characteristics, offering more 

attractive rates to existing customers who have good payment records while imposing relatively 

 7

 Currently, over 5,000 depository institutions including commercial banks, credit unions and savings institutions, 

issue VISA and MasterCard credit cards and independently set the terms and conditions on their plans. Many 

thousands of other institutions act as agents for card-issuing institutions. In addition to the firms issuing cards 

through the VISA and MasterCard networks, two other large firms, American Express Co. and Discover Financial 

Services, issue independent general purpose credit cards to the public. 8 Refer to www.federalreserve.gov/releases/g19/Current 9

 Refer to the G 19 http://www.federalreserve.gov/Releases/g19/current/ 10 Refer to report to the Congress, “Credit Cards: Increased Complexity in Rates and Fees Heightens Need for More 

Effective Disclosures to Consumers,” Government Accountability Office, GAO-06-929, April 21, 2006; available at 

www.gao.gov. 
high rates on higher-risk or late-paying cardholders. Card issuers also closely monitor payment 

and charge volumes and adjust credit limits accordingly, both to allow increased borrowing 

capacity as warranted and to limit credit risk.

In the recent economic downturn card issuers have aggressively reviewed interest rates 

and credit limits and have reduced limits on millions of accounts, particularly accounts that were 

inactive or those little used by cardholders.

11 Issuers have also closed many of these accounts as 

well as accounts that have become delinquent. In the current economic environment, inactive or 

little used accounts pose considerable risk of loss while offering little potential for profit as 

cardholders can draw on these accounts if they encounter financial distress. Trends in credit card 

pricing are discussed in more detail below. 

The U.S. general purpose bank credit card market is dominated by VISA and MasterCard 

labeled cards that combined accounted for an estimated 473 million cards in 2009 down from 

about 565 million in 2008.

12 In addition, American Express and Discover Card Services 

provided another 103 million general purpose cards to consumers in 2009 down 7 percent from 

2008. Reflecting the effects of the recession, the combined total of charge volume and cash 

advances using credit cards fell about 13 percent from the $2.174 trillion level in 2008.

Direct mail solicitations continue to be the primary channel used for new account 

acquisition and account retention. After reaching an all-time high in 2005 of 6.05 billion direct 

mail solicitations, mailings have fallen off sharply. Mail solicitations fell to only 3.8 billion in 

2008.

13 The effects of the weak economic environment led to a further decline in solicitations in 

2009 as card issuers sent 1.9 billion mailings during the year. Industry data suggest however that 

the retrenchment in mailings may have begun to ease some over the course of 2009 as prospects 

for economic recovery improved. For example, industry data related to mailings focused on the 

acquisition of new credit card accounts showed a nearly 50 percent increase from the third to the 

fourth quarter of 2009.

14 

Recent Trends in Credit Card Pricing

Aside from questions about the profitability of credit card operations, considerable 

attention has been focused on credit card pricing and how it has changed in recent years. 

 11 A review of a sample of credit records by the Federal Reserve found that about 10 percent of active general 

purpose bank credit cards experienced a line reduction from June 30, 2007 to December 31, 2008. 

12 Source: The Nilson Report, February 2010 issue 942.

13 Source: Discussions with staff at Synovate Mail Monitor, mailmonitor.synovate.com/news.asp.

14 Refer to report “Q4 2009 U. S. Consumer Acquisition Credit Card Overview”, prepared by Mintel International 

Group, www.comperemedia.com. A sharp expansion in mailings from the third to the fourth quarter of 2009 was 

also reported by Synovate Mail Monitor February 2010. Refer to “Credit Card Offers Make a Comeback to U.S. 

Households,” http://mailmonitor.synovate.com/news.asp
Analysis of the trends in credit card pricing in this report focuses on credit card interest rates 

because they are the most important component of the pricing of credit card services. Credit card 

pricing, however, involves other elements, including annual fees, fees for cash advances, rebates, 

minimum finance charges, over-the-limit fees, and late payment charges.15 In addition, the 

length of the "interest-free" grace period, if any, can have an important influence on the amount 

of interest consumers pay when they use credit cards to generate revolving credit.

Over the past several years, pricing practices in the credit card market have changed 

significantly. Today card issuers offer a broad range of card plans with differing rates depending 

on credit risk and consumer usage patterns. Moreover, as noted, issuers have moved to 

variable-rate pricing that ties movements in their interest rates to a specified index such as the 

prime rate. 

As noted, risk-based pricing has become a central element of most credit card plan 

pricing regimes and the current downturn and new credit card rules spurred changes in pricing in 

2009. In most plans, an issuer establishes a rate of interest for customers of a given risk profile, 

if the consumer borrows and pays within the terms of the plan that rate applies. If the borrower 

fails to meet the plan requirements, for example, the borrower pays late or goes over their credit 

limit, the issuer may reprice the account reflecting the higher credit risk revealed by the new 

behavior. Issuers also consider the cardholder’s performance on other credit accounts including 

those with other issuers when establishing rates. Recently adopted regulations limit the ability of 

card issuers to reprice outstanding balances for cardholders that have not fallen well behind on 

the payments on their accounts but will continue to provide issuers with considerable pricing 

flexibility regarding new balances.

At present, the Federal Reserve collects information on credit card pricing through two 

surveys of credit card issuers. Because of the significant changes in the pricing of credit card 

services, the Federal Reserve initiated the Quarterly Report of Credit Card Interest Rates

(FR 2835a) at the end of 1994. This survey collects information from a sample of credit card 

issuers on (1) the average nominal interest rate and (2) the average computed interest rate. The 

former is the simple average interest rate posted across all accounts; the latter is the average 

interest rate paid by those cardholders that incur finance charges. These two measures can differ 

because some cardholders are convenience users who pay off their balances during the 

 15 In June 1996, the Supreme Court ruled that states may not regulate the fees charged by out-of-state credit card 

issuers. States have not been permitted to regulate the interest rates out-of-state banks charge. In making its decision,

the Court supported the position previously adopted by the Comptroller of the Currency that a wide variety of bank 

charges, such as late fees, membership fees, and over-the-limit fees, are to be considered interest payments for this 

purpose. This ruling will likely ensure that banks will continue to price credit cards in multidimensional ways rather 

than pricing exclusively through interest rates. Source: Valerie Block, ASupreme Court Upholds Nationwide Card 

Charges,@ American Banker, June 4, 1996. 

An assessment of the fees charged by credit card issuers is provided in “Credit Cards: Increased complexity 

in Rates and Fees Heightens Need for More Effective Disclosures to Consumers,” U.S. Government Accountability 

Office, Report 06-929, September 12, 2006. Refer to www.gao.gov.
interest-free grace period and therefore do not typically incur finance charges. Together, these 

two interest rate series provide a measure of credit card pricing. The data are made available to 

the public each quarter in the Federal Reserve Statistical Release G.19 Consumer Credit. The 

Federal Reserve also collects detailed information on the pricing features of the largest credit 

card plan of a sample of issuers through the Survey of Terms of Credit Card Plans (FR 2572).16

Because information from the FR 2835a survey does not have an extended historical 

interest rate series for comparison purposes, this report on credit card profitability also presents 

data from the survey that preceded and was replaced by the FR 2835a, the Federal Reserve's 

Quarterly Report of Interest Rates on Selected Direct Consumer Installment Loans (FR 2835). 

Data from the FR 2835 indicate that credit card interest rates fell sharply from mid-1991 through 

early 1994 after being relatively stable for most of the previous twenty years, and fell again over 

the 1998-2003 period (Table 2).17 Since early 1998, credit card interest rates have fluctuated 

between 12.78 and 15.85 percent. 

It is important to note that while average rates paid by consumers have moved in a

relatively narrow band over the past several years, interest rates charged vary considerably across 

credit card plans and borrowers reflecting the various features of the plans and the risk profile of 

the card holders served. For 2009, credit card interest rates averaged 14.31 percent for those 

incurring finance charges, up 74 basis points from the 2008 average.

18 The increase in rates 

reflects repricing in response to rising delinquencies and chargeoffs; it may also be driven in part 

by repricing in anticipation of regulatory restrictions.

Additional evidence on changes in credit card interest rates comes from the FR 2572. 

Although not precisely comparable from period-to-period because of changes in the sample of 

reporters, this statistical series reveals a general decline in credit card interest rates in recent 

years. For example, only 11 percent of the respondents reported interest rates below 16 percent 

on their largest credit card plan as of September 1991, but 85 percent did so as of January 2010

(the most recent report available). In addition, the proportion of card issuers reporting that they 

utilize variable-rate pricing has also increased substantially since September 1991. As of 

September 1991, 23 percent of issuers used variable-rate pricing; as of January 2010, the 

proportion was 67 percent.

 16 The information in the FR 2572 survey is published twice a year by the Federal Reserve. Historically, the data 

were made available in a statistical release, the E.5 AReport of the Terms of Credit Card Plans@. Beginning in 1995, 

the E.5 statistical release was discontinued and data are now available exclusively on the Board=s web site at 

www.federalreserve.gov/creditcard/survey.html

17 For a comprehensive discussion of the factors that account for the levels and changes in credit card interest rates 

see, Glenn B. Canner and Charles A. Luckett, ADevelopments in the Pricing of Credit Card Services@; also U.S. 

General Accountability Office, U.S. Credit Card Industry (GAO/GGD-94-23, 1994).

18 It should be emphasized that the interest rates reported after August 1994 are based on the new survey and are not 

strictly comparable to the interest rates reported on the older survey.
One consequence of the shift to variable-rate pricing is that credit card rates respond more 

quickly to changes in market interest rates. New regulations limiting the circumstances in which 

card issuers may reprice outstanding balances create incentives for issuers to continue to migrate 

to variable-rate pricing (see discussion below). Data from the Survey of Terms of Credit Card 

Plans finds that the proportion of issuers reporting variable-rate pricing increased from 61 

percent in January 2009 to 67 percent in January 2010.

Recent Regulatory and Legislative Actions

Credit card related lending has been the focus of regulatory and legislative activity over 

the past year or so. The new rules affect a variety of business practices and will result in changes 

to the pricing, marketing and underwriting of credit cards and ultimately to their use by 

consumers.

On December 18, 2008 the Federal Reserve Board approved regulatory changes to 

protect credit card users by prohibiting certain unfair acts or practices and improving the 

disclosures consumers receive in connection with credit card accounts and other revolving credit 

plans.19 The rules prohibiting certain credit card practices were adopted under the Federal Trade 

Commission Act, and were issued concurrently with substantially similar rules by the Office of 

Thrift Supervision and the National Credit Union Administration. 

The Federal Reserve Board also adopted rules to revise the disclosures consumers receive 

in connection with credit card accounts and other revolving credit plans to ensure that 

information is provided in a timely manner and in a form that is readily understandable. These 

rules amend Regulation Z (Truth in Lending). The final rules under Regulation Z require 

changes to the format, timing, and content requirements for credit card applications and 

solicitations and for the disclosures that consumers receive throughout the life of an open-end 

account.

On May 22, 2009 the “Credit Card Accountability Responsibility and Disclosure Act of 

2009” (referred to here as the Card Act) was enacted by the Congress to establish new 

protections for credit card users by prohibiting or limiting certain acts or practices and improving 

the disclosures consumers receive in connection with credit card accounts and other revolving 

credit plans. The legislation mirrors in many respects the Federal Reserve’s recent changes to 

credit card rules but goes further in a number of areas. The Card Act ensures advanced 

notification of changes in key credit terms and establishes rules regarding repricing of 

outstanding balances; requires allocation of payments above the minimum to balances that are 

assessed the highest interest rate first; limits the imposition of certain fees; establishes rules for 

cardholders to “opt-in” if they wish to have their issuer allow a transaction to be paid if the 

payment exceeds their credit limit; requires disclosure of the consequences of only making 

required payments; places limitations on extending credit cards to those under the age of 21; 

establishes a requirement that issuers must consider the consumer’s ability to make the required 

 19 Refer to www.federalreserve.gov/newsevents/press/bcreg/20081218a.htm
payments under the terms of a credit card plan before issuing a card or increasing a credit limit;

and restricts fees on so-called “subprime” credit cards. Rules regarding advanced notice and the 

amount of time a cardholder has to make payments took effect in August 2009. Most of the other 

rules that implement the provisions of the Card Act took effect on February 22, 2010.20 

Additional rule making is ongoing, including provisions that ensure that so-called “penalty” fees 

(fees for late payments and for exceeding credit limits) are reasonable and proportional. 

 20 Refer to www.federalreserve.gov/consumerinfo/wyntk/creditcardrules.htm
Table 2. Average most common interest rate on credit card plans, 1974–August 1994, and 

the interest rate assessed on accounts incurring interest charges, November 1994–2009

(Percent)

Year Interest rate Year Quarter Interest rate

1974 17.20 1999 February 14.73

1975 17.16 May 14.94

1976 17.05 August 14.79

1977 16.88 November 14.77

1978 17.03

1979 17.03 2000 February 14.32

1980 17.31 May 14.74

1981 17.78 August 15.35

1982 18.51 November 15.23

1983 18.78

1984 18.77 2001 February 14.61

1985 18.69 May 14.63

1986 18.26 August 14.64

1987 17.92 November 13.88

1988 17.78

1989 18.02 2002 February 12.98

1990 18.17 May 13.34

1991 18.23 August 13.26

1992 17.78 November 12.78

1993 16.83

1994 15.77 2003 February 12.85

1995 15.79 May 12.82

1996 15.50 August 13.11

1997 15.57 November 12.91

1998 15.59

1999 14.81 2004 February 12.41

2000 14.91 May 12.93

2001 14.44 August 13.60

2002 13.09 November 13.92

2003 12.92

2004 13.21 2005 February 14.13

2005 14.54 May 14.81

2006 14.73 August 14.75

2007 14.68 November 14.48

2008 13.57

2009 14.31 2006 February 14.38

May 14.77

August 14.67

2007

November

February

May

August

November 

15.09

14.64

14.47

15.24

14.35

2008 February

May

August

November

13.77

13.51

13.64

13.36

2009 February 13.54

May 14.43

August 14.90

November 14.37

Note: Prior to November 1994 interest rates were those reported in the Quarterly Report of Interest Rates 

on Selected Direct Installment Loans. Beginning in November 1994 interest rates are those reported on the 

Quarterly Report of Credit Card Interest Rates for those credit card holders incurring interest charges.

Source: Board of Governors of the Federal Reserve System.