Discover expects to keep cash rewards, CEO says
Discover Financial Services expects to keep its cash rewards program, said Chairman and Chief Executive Officer David Nelms, breaking with the industry's contention that the new credit-card "bill of rights" will curb benefits for customers.
"It makes a difference that we've been offering cash back since 1986," Nelms said at an investor conference in New York today, adding that the cost is "very sustainable" for the fourth-biggest card network. "It's something that's very easy to offer."
U.S. card lenders opposed rules signed into law by President Barack Obama last week that would curb fees and marketing practices. Lenders said the law may reduce profit and force them to reduce perks such as cash rebates for customers who pay on time.
"Cash back in particular has been the second-most successful consumer-reward program" behind frequent-flyer rewards, said David Robertson, publisher of the Nilson Report, an industry newsletter. "Cash back has become highly desirable. Every major credit-card company now offers a similar product."
JPMorgan Chase & Co., the second-largest U.S. bank by deposits, said today at an investor presentation that losses in its credit-card unit "will approach 9 percent" this quarter and continue climbing with the jobless tally. Nelms also said today that Discover's loan losses likely will continue to climb along with the unemployment rate, which rose to 8.9 percent in April, the highest since 1983.
Credit-card charge-offs, or loans deemed uncollectible, soared 68.9 percent, or $3.4 billion, at U.S. banks during the first quarter, according to the latest report from the Federal Deposit Insurance Corporation.
Nelms, who cut jobs and slashed the dividend to preserve capital amid increasing loan defaults, said he expects charge- offs to reach 8 percent in the second quarter. The charge-off rate was 6.48 percent in the first quarter. The figures include loans held by the company and those sold to investors.
Discover, based in Riverwoods, rose 11 cents to $9 at 1.43 p.m. in New York Stock Exchange composite trading.