Credit Card Reforn Moving Forward
Yesterday, credit card legislation took another step toward passage as the U.S. Senate Banking Committee narrowly passed The Credit Card Accountability, Responsibility and Disclosure Act. Known as "The Credit CARD Act", the bill seeks to ban abusive credit card practices.
The bill will now go to the Senate floor but the committee's chairman, Sen. Christopher Dodd said he would work to modify the bill in order to broaden its support in light of the close 12-11 vote.
Today, congressional credit card reform takes place on another front. The House Financial Services Subcommittee on Financial Institutions considers a similar bill, The Credit Card Holder's Bill of Rights.
If either credit card reform bill passes, the legislation could:
* Prohibit card issuers from unfairly raising rates.
* Prohibit applying rate increases retroactively.
* Limit over-the-limit fees.
* Ban universal default.
* Prevent issuer from changing terms as long as the user pays on time.
"The Federal Reserve has already passed similar credit card regulations, but they don't have to go into effect until July of 2010. Meanwhile, banks and lending institutions find themselves in a very turbulent financial situation. Some people believe they are using this pre-regulation time to increase rates and fees and generate revenue any way they can, even at the risk of angering their cardholders or adding to the financial burdens of struggling households," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. "While these regulations are good for consumers and they are needed, it's not a win-win situation for everyone. These reforms will be costly for banks while they are still in crisis. Banks are warning that these reforms may derail the government's efforts to increase available credit for consumers needed to encourage spending."
Issuers and banks are still trying to recover from collapse of bad loans. The number of defaults for credit card loans is still growing each quarter and some analysts predict the default rate could eventually be as high as 9-10%. These defaults are alarming for issuers and costing them billions of dollars every year. As a result, they are minimizing risk every way they can, even offering financial incentives for the riskiest cardholders to pay off their balance and close their account. To protect themselves, issuers are increasing rates and cutting credit limits as soon as they sense that a cardholder has become any greater credit risk.
The credit card regulation limits the issuer's ability to raise rates at "any time, for any reason." The banks and lending institutions say this will limit their ability to take risks, so they will accept fewer applications for credit cards and everyone will have higher rates. They are lobbying against these changes and doing what they can to dilute them.
The bill will now go to the Senate floor but the committee's chairman, Sen. Christopher Dodd said he would work to modify the bill in order to broaden its support in light of the close 12-11 vote.
Today, congressional credit card reform takes place on another front. The House Financial Services Subcommittee on Financial Institutions considers a similar bill, The Credit Card Holder's Bill of Rights.
If either credit card reform bill passes, the legislation could:
* Prohibit card issuers from unfairly raising rates.
* Prohibit applying rate increases retroactively.
* Limit over-the-limit fees.
* Ban universal default.
* Prevent issuer from changing terms as long as the user pays on time.
"The Federal Reserve has already passed similar credit card regulations, but they don't have to go into effect until July of 2010. Meanwhile, banks and lending institutions find themselves in a very turbulent financial situation. Some people believe they are using this pre-regulation time to increase rates and fees and generate revenue any way they can, even at the risk of angering their cardholders or adding to the financial burdens of struggling households," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. "While these regulations are good for consumers and they are needed, it's not a win-win situation for everyone. These reforms will be costly for banks while they are still in crisis. Banks are warning that these reforms may derail the government's efforts to increase available credit for consumers needed to encourage spending."
Issuers and banks are still trying to recover from collapse of bad loans. The number of defaults for credit card loans is still growing each quarter and some analysts predict the default rate could eventually be as high as 9-10%. These defaults are alarming for issuers and costing them billions of dollars every year. As a result, they are minimizing risk every way they can, even offering financial incentives for the riskiest cardholders to pay off their balance and close their account. To protect themselves, issuers are increasing rates and cutting credit limits as soon as they sense that a cardholder has become any greater credit risk.
The credit card regulation limits the issuer's ability to raise rates at "any time, for any reason." The banks and lending institutions say this will limit their ability to take risks, so they will accept fewer applications for credit cards and everyone will have higher rates. They are lobbying against these changes and doing what they can to dilute them.
