New Credit Card Reforms a Good Thing?
The recently enacted Credit Card Accountability Responsibility and Disclosure Act, what you might know as the credit card bill of rights, might start to cause consumers more headaches than assistance. And that’s because the industry had plenty of time to prepare for the new laws.
In short, the bill took some of the most profitable aspects of lending away from banks. And they need to come up with new and inventive ways to retain their profit margins, right? So exactly where did it all go wrong?
Time to Prepare
In the midst of the economic crisis, bank bailout, stimulus and other financial worries of 2009, banks had about nine months to prepare for the law to take effect. So, before it would be illegal, most card companies raised rates on their customers, reduced lines for so-called risky borrowers, and created all sorts of new fees, such as fees for not using your account frequently enough.
So just how profitable is the credit card industry? According to reports, the top 12 issuers earned a combined $19 billion (yes, that’s a b) in 2007. And that was before economic catastrophe, when everyone turned to credit to pay their bills, buy gifts, pay the mortgage and stay afloat while jobs were becoming scarce.
But banks are feeling a pinch. The number of active cards for Visa, MasterCard and American Express dropped by some 15 percent in 2009, meaning those banks lost a lot of customers, a lot of fees (both merchant fees and consumer fees) and thus a lot of profits.
What the Act is Supposed to Do
Among the benefits to consumers with the act:
- Banks can’t raise interest rates for a year unless you’re 60 days past due. This means the banks can’t raise your rates because you paid a day late anymore.
- All payments will be applied to balances with the highest interest rates first, instead of the way it used to be.
- Bills will display exactly how long it’ll take to pay off your balance if you make only minimum payments. This could be a difficult reality for consumers to face, and might help us all pay off our debt faster if we realize just how difficult it can be to pay off at a minimum rate.
- You’ve got to receive at least 21 days to pay your bill. No more changing due dates or addresses, or other sneaky tricks.
What the Act Wasn’t Supposed to Do
Now, sure. If you’re a good consumer who pays the bills on time, and has good credit, chances are you’ll benefit from this act. But for consumers who were already struggling, this act could bring some difficulties. Among them, consumers might have less access to credit than they did before. If they were in trouble, they might lose their existing credit or have cards canceled for lack of use. And all of this means consumers are going to turn to new and inventive ways to get approved for a loan, most specifically the payday loan industry.