Credit card rules portend changes for consumer, industry

We are on the verge of a seeing a wholesale change in the way the American public views its credit cards.
It has been and is going to be a painful process.
While many consumers, wooed by the lure of instant gratification with delayed payment, failed to exhibit the best in fiscal responsibility, the credit card industry took advantage by introducing what can best be called predatory practices.
And although the government has stepped in to legislate what you would really expect to be some common sense values in the business, the much-criticized delay in activating the new requirements has allowed the credit card companies to wring as much last-minute profit out of the system as possible.
Congress passed the Credit CARD Act of 2009 last May in an effort to protect consumers from what the Federal Reserve called “unfair or deceptive” practices.
After years of complaints from consumer advocacy groups about credit companies’ pricing practices, the Credit CARD Act regulations began with two rules. Consumers must be given advance warning of any major changes to the terms of their accounts and get more time to pay their balance after receiving a bill.
On Feb. 22, more regulations will go into effect that mandate reviews every six months of accounts that have had rate hikes and that limit the amount of credit that can be offered to students.
The law was designed to give consumers expanded protections, fewer fees and more clarity, but in the meantime, consumer advocates say the delay in implementing the rules has allowed the bank and credit card companies to aggressively find ways to raise revenue quickly. They say the banks and credit card companies were looking for ways to make up an estimated $50 billion they will lose when the rules take effect.
The news has been rife with reports of how the companies have targeted consumers’ credit cards to make up the losses.
One news source quoted Adam Levin of the credit education site Credit.com as seeing a “wholesale raising of interest rates.”
“I’ve seen 12, 15 percent,” he said. “There’s no question they were front-running the laws.”
But Ken Clayton, a senior vice president of the American Bankers Association, said recent rate increases were not an effort to circumvent the new regulations, but the result of massive losses faced by the credit card industry because of the recession. More than 10 percent of all credit card customers have defaulted on payments this year, he said.
Obviously, there is no middle ground here. This appears to be one of those rare cases where legislation is the answer to dealing with capitalism run amuck.
There are no limits on how much interest a credit card company can charge, and the new law does not change that.
While Congress left consumers vulnerable when it gave the credit card industry as long as 15 months to end its deceptive predatory practices, the rush to run up credit card rates should be at an end. With the requirement that credit card companies have to give 45 days notice before increasing interest rates, if the company sends a letter that was postmarked after Jan. 7, the rate increase cannot go into effect for the consumer.
Hopefully the lesson here is to help consumers reign in their spend-on-credit lifestyle and practice some much-needed savings and thrift, but you would be remiss to think that the credit card companies didn’t have a hand in fostering that lifestyle.
Remember all the credit applications temptingly laid out for you in college?
It was hard to resist those shiny lures while enduring the frugal lifestyle of a student.
And, besides, wasn’t it a required right of passage to start building a “credit score?”
Maybe it is finally time for the credit card to give way to the ability to save as a primary measure of credit-worthiness.



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