The much-lauded Credit Card Accountability, Responsibility and Disclosure (CARD) Act finally went into effect this week, after months of unethical shenanigans by the credit card industry as they tried to squeeze as much money out of consumers as possible. Signed by Obama last May, the law's implementation was put off until February in order to give the credit card companies and banks time to "adjust". What they did, of course, was play havoc with customer's money, jacking up fees, applying them retroactively, and instituting interest rates close to 1000%.
Now, though, the party is over. Or is it? Closer inspection of the law's provisions certainly seem protective of consumers: Caps on certain fees, 45-day notice on interest rate increases (which took effect last summer), and the scoop on exactly how long it will take to pay off your debt if you pay the minimum each month. These things are all good, especially the part where the print must be readable without the use of an electron microscope. The effect on consumers, though, is not quite so positive.
Eileen AJ Connelly, a reporter for the AP, writes that banks and other lenders that issue credit cards are already finding ways around the new law. Since the newly enacted restrictions will reduce their profit margins by half within three years (according to FICO), lenders have responded by creating new fees, re-instituting annual fees (almost unheard-of for the last few years) and cutting lines of credit. If you find yourself affected by these changes, consider yourself lucky: Many accounts were simply closed by credit card companies in order to reduce their risk. The account holders had no say in the matter.
Although the new 6-week notice for interest rate hikes is a good thing, there is no cap on high those rates can climb. In addition, many cards that previously had fixed interest rates have now, unilaterally by the lenders, been changed to variable rates. Since the only direction at this point for rates to go is "up", this does not bode well for card holders. Overall, credit cards will be much less accessible for everyone, particularly those with lower incomes.
Card issuers argue that not only does the new law decrease their profits, but the recession also took its toll on their bottom lines. According to the Nilson Report, lenders saw their earnings plunge from $19 billion in 2007 to $6.32 the next year. Of course, that's still a hefty profit, and, since much of the decrease was due to unemployed people defaulting, I guess they didn't suffer as much as others did. However, since the laws are written for the big guys and not everyman, their suffering is worth more. A reasonable person might expect that reduced profits during economic downturns are just a cost of doing business in the credit industry, but never mind. That yardstick only applies to small businesses, apparently. Therefore, they are able to make up their profits in new ways unavailable to the rest of us. Score another one for the big boys.
Now, though, the party is over. Or is it? Closer inspection of the law's provisions certainly seem protective of consumers: Caps on certain fees, 45-day notice on interest rate increases (which took effect last summer), and the scoop on exactly how long it will take to pay off your debt if you pay the minimum each month. These things are all good, especially the part where the print must be readable without the use of an electron microscope. The effect on consumers, though, is not quite so positive.
Eileen AJ Connelly, a reporter for the AP, writes that banks and other lenders that issue credit cards are already finding ways around the new law. Since the newly enacted restrictions will reduce their profit margins by half within three years (according to FICO), lenders have responded by creating new fees, re-instituting annual fees (almost unheard-of for the last few years) and cutting lines of credit. If you find yourself affected by these changes, consider yourself lucky: Many accounts were simply closed by credit card companies in order to reduce their risk. The account holders had no say in the matter.
Although the new 6-week notice for interest rate hikes is a good thing, there is no cap on high those rates can climb. In addition, many cards that previously had fixed interest rates have now, unilaterally by the lenders, been changed to variable rates. Since the only direction at this point for rates to go is "up", this does not bode well for card holders. Overall, credit cards will be much less accessible for everyone, particularly those with lower incomes.
Card issuers argue that not only does the new law decrease their profits, but the recession also took its toll on their bottom lines. According to the Nilson Report, lenders saw their earnings plunge from $19 billion in 2007 to $6.32 the next year. Of course, that's still a hefty profit, and, since much of the decrease was due to unemployed people defaulting, I guess they didn't suffer as much as others did. However, since the laws are written for the big guys and not everyman, their suffering is worth more. A reasonable person might expect that reduced profits during economic downturns are just a cost of doing business in the credit industry, but never mind. That yardstick only applies to small businesses, apparently. Therefore, they are able to make up their profits in new ways unavailable to the rest of us. Score another one for the big boys.
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