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| U.S. credit cardholders in store for big changes |
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WASHINGTON, D.C. (AP) — Every American with a credit card will see sweeping changes in the market, with limits on sudden hikes in interest rates that drive consumers deeper into debt. Even cardholders who pay off their balance each month may face new annual fees or lose out on lucrative rewards programs.
Congress wrapped up the legislation May 20 and sent it to President Obama, who at press time planned to sign it. The bill will revolutionize the market by restricting when and how a card company can raise an individual’s interest rate, who can receive a card and how much time people are given to pay their bill.
In general, the new rules – which go into effect in nine months – will protect debt-ridden consumers from many of the surprise charges common in the industry, such as over-the-limit fees and costs for paying a bill by phone. “This cements a victory for every American consumer who has ever suffered at the hands of the credit card industry,” said Sen. Christopher Dodd (D-Conn.), chairman of the Banking Committee.
But there will be losers too. Banks, which oppose the legislation, need to make up the cost somewhere, and cardholders who pay off their balance in full each month could see new annual fees and lucrative rewards programs canceled. Credit could become harder to come by, too.
Some of the changes, including a requirement that cardholders receive 45 days’ notice before their rates are raised, are already on track to take effect in July 2010 under new regulations by the Federal Reserve. The legislation would put these changes into law and go farther in restricting when and how banks charge people and who could get a card.
The House passed the reform bill by a 361-64 vote. The Senate had voted, 90-5, for the measure on May 19.
Nick Bourke, manager of the Safe Credit Cards Project at the Pew Health Group, said companies already offering transparent pricing won’t have to drastically change how they do business. Lenders could probably cover costs with small annual fees in the $15-$20 range or increase upfront interest rates, he said.
“Nothing requires pricing to go up and benefits to go down,” Bourke said. “The only thing that is required is that the price offered actually reflects the cost of using the card.”
Last year, the Nilson Report estimated more than 700 million credit cards were in circulation in the United States. What’s more is that many cardholders are carrying hefty balances. According to the Federal Reserve, the nation is some $2.5 trillion in debt, excluding home mortgages.
Lawmakers supporting the bill say legislation is necessary to stop a vicious cycle: A cardholder falls behind on one bill and watches helplessly as the rate spikes on their existing balance. Buried in interest fees and other charges, they spend less, which hurts local businesses.
Under the bill, a customer would have to be more than 60 days behind on a payment before seeing a rate increase on an existing balance. Even then, the lender would be required to restore the previous, lower rate if the cardholder pays the minimum balance on time for six months.
The practice of charging higher rates and fees to cardholders with risky credit was devised as a means to protect lenders against the risk of default while keeping costs low for consumers who paid their bill on time. |
| 5/27/2009 |
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