American Express CEO Ken Chenault on CNBC

There was an interesting interview on CNBC today with Ken Chenault, CEO of American Express. While Chenault spent half of the interview discussing the AXP brand and strategy, he also spent time discussing the economy in general, and credit card legislation specifically. Instead of simply pumping the economy and his company, Chenault was more sober and direct. In particular, during the first few minutes he mentioned that while recent government actions have produced stability and are giving signs that could potentially lead to "green shoots," it is too soon to call this a recovery. Around the 7:30 min mark he also comments on the proposed credit card reform. While he believes that some type of reform is necessary, he does not agree with some of the proposals regarding risk-based pricing, which could stifle growth and limit credit for those who may need it the most. As written, he is yet not convinced that the current proposed legislation will have a positive impact on the economy.

While Chenault has a dog in the fight, and company interest in the legislation, I believe he is right to expand the argument to the broader economy. While restricting the ability the price risk would reduce an extra source of revenue for the credit card companies, the impact on retail sales will also be negative, significant, and ultimately detrimental to growth (see previous post). Beyond the lost of revenue due to lower rates and fees, the inability to effectively manage risk can not be discounted, or its effect on helping to measure, control, and regulate systemic risk (see previous post).

Source: CNBC Video