Capital One is one of the leading providers of Visa cards in the world. Fortune Magazine ranked Capital One number four on their list of America’s most admired companies for consumer credit. Capital One offers a variety of different cards for business owners, students, people with poor or damaged credit, and people with excellent credit.
Capital One, they contend, is simply aiming to maximize fee income from debtors who may be less sophisticated and who may not have many options because of their credit history. By offering several cards with low limits, instead of one with a larger limit, the odds are increased that cardholders will exceed their limits, garnering over-limit fees. Capital One’s banking division is a relatively superior franchise, and most of its income is from the U.S. I think that once Capital One turns the corner and gets back on a growth track, the market will reward it with a much richer multiple.
In January of this year the credit card division of Bank of America sent a letter to some of its 40 million credit card customers telling them by fiat that they were jacking up the interest rates on their BoA credit cards to as high as 28%. There was no explanation given about why this was happening. In many cases the cardholders were responsible citizens who paid their bills on time and were not experiencing any life changing financial difficulties that would have suddenly made them a high credit risk. So what gives?