Key Trends for Card Accounting in 2024: Regulatory Changes and Macroeconomic Shifts

Credit card accounting in 2024 was shaped by a convergence of slower balance growth, escalating costs, and regulatory changes.

After years of pandemic-era spending, balance growth cooled in 2024, while escalating costs for rewards programs and co-brand partnerships squeezed margins. Meanwhile, the CFPB’s push to cap late fees sent ripples through the industry, with non-prime issuers bracing for outsized impacts. And the overall backdrop to these developments: the evolving implementation of CECL frameworks, with qualitative factors took center stage in risk assessments.

Add it all up, and it becomes clear: credit card accounting is entering an era of unprecedented complexity. Auriemma Roundtables’ Credit Card Accounting Roundtable lender members have been leveraging the power of benchmarking and collaboration to navigate this environment.

Macroeconomic Impacts

Evolving macroeconomic conditions present card issuers with a complex financial landscape. Key factors such as inflation, consumer sentiment, credit quality, net interest margins (NIM), and market competition play a central role in navigating these challenges.

Inflation’s Effect on Consumers

While credit card utilization rates have ticked upward across the broader economy, non-prime consumers have felt the most pinch. These borrowers, often with limited liquidity, still face heightened financial strain due to inflation, driving weaker consumer sentiment and elevated debt service challenges. While wage growth has caught up with inflation, the lingering effects of prior years’ inflationary pressures continue to undermine their financial stability and confidence.

Balance Growth and Competition

After above-trend balance growth of around 13% in 2023, credit card balance growth moderated somewhat. Balances were 8.1% year-over-year as of last month, according to the Federal Reserve Bank of New York. Meanwhile, the credit card market remains highly competitive, with issuers deploying aggressive rewards and marketing strategies to capture share. However, escalating costs from rewards programs and co-brand partnerships, alongside international market expansions, challenge long-term profitability.

An Ever-Evolving Regulatory Environment

The regulatory environment saw seismic shifts in the credit card accounting sector, especially considering developments from the Consumer Financial Protection Bureau (CFPB).

In March 2024, the CFPB proposed a final rule to cap credit card late fees at $8, effectively reducing such fees by approximately 75%. This move was quickly contested in court, with a preliminary injunction granted on the grounds of the CFPB’s funding mechanism’s constitutionality. However, the Supreme Court ultimately upheld the CFPB’s constitutionality, leaving the fate of the rule uncertain.

Long-Term Implications for Credit Card Accounting

The reliance on late fees varies significantly across credit card issuers. Non-prime issuers, which typically serve lower-credit-quality consumers, are particularly vulnerable. Prime issuers, in contrast, rely less heavily on late fees, cushioning them from the rule’s impact.

If the rule survives legal and political hurdles – and policy changes from the incoming administration – its impact will reverberate across the industry. For non-prime issuers, the reduction in late fee revenue will necessitate significant adjustments to pricing and product strategies. Meanwhile, competitive dynamics may intensify, as smaller players leverage fee caps to attract new customers.

As the regulatory environment continues to evolve, the credit card sector must balance compliance, profitability, and strategic innovation. The eventual outcome of this regulation will shape the industry’s revenue dynamics and competitive landscape.

Ongoing Ripple Effects from Current Expected Credit Loss (CECL)

The CECL model is drives significant changes in credit card accounting, with institutions refining methodologies to meet regulatory expectations and enhance risk assessment. Some Roundtable members are incorporating qualitative factors into their models, prompted by external audit pressures and regulatory guidance. Some use frameworks to evaluate nine standardized qualitative factors equally, acknowledging their importance can shift over time, while others employ scorecard systems to rank risks from neutral to severe. Back-testing approaches also vary, with some focusing on charged-off accounts at specific points in time, noting repayment rates well below industry averages, and others conducting holistic analyses that account for interest and fees. These innovations highlight the industry’s move toward more adaptive and forward-looking credit risk management.

Across the sector, institutions are proactively incorporating qualitative elements, aligning with regulatory guidance and external audit pressures. Frameworks for quarterly assessments have become a norm, ensuring consistency and transparency.

Even without direct regulatory oversight, some institutions apply scorecard methodologies to assess qualitative risks. These systems evaluate factors on a scale from neutral to severe, enabling a structured approach to identifying potential vulnerabilities.

Looking Ahead to 2025

The potential finalization—or cancellation—of fee caps on credit card late payments and interchange fees could significantly reshape the revenue models of card issuers in 2025. Fee caps, if implemented, may limit the profitability of penalty fees and reduce reliance on ancillary income streams, forcing issuers to explore alternative revenue channels or adjust their pricing strategies, such as increasing annual fees or interest rates. Alternatively, a cancellation of proposed fee caps would likely preserve the status quo but might invite heightened regulatory scrutiny in other areas, such as transparency in cardholder agreements.

Simultaneously, the ongoing refinement of CECL (Current Expected Credit Loss) frameworks will continue to challenge issuers, particularly if economic uncertainty persists.

Roundtable members discuss the best practices to address these developing trends. To learn more about how accounting teams can leverage the insights of Auriemma Roundtables’ Card Accounting group, contact Ed Torres or Tami Corsi.