Credit Card Act: New Laws Are In Effect, So What’s Next?

by Silicon Valley Blogger on 2010-02-2210

What do you think of the new credit card laws and the Credit Card Act (aka the Credit Card Accountability, Responsibility and Disclosure Act) ? With card issuers’ profit margins under assault, what does this portend for card holders and consumers?

The financial world has been quite abuzz about the Credit Card Act that was put into effect as of today. The truth is, these changes have been anticipated for a while now, so this isn’t news to most of us. But what it’s actually done is strike fear in the hearts of credit card companies and financial institutions that are in the business of handing out credit cards.

Update on The Credit Card Act

Yesterday, CNN Money was chock full of articles that lamented the plight of the poor credit companies that are worried about the laws’ impact on their profit margins. According to this article, the country’s biggest card issuer, JPMorgan Chase (the guys who effectively bailed out WaMu), is projecting that they will lose around $750 million this year because of the new rules. Citigroup claims that they will lose between $400 to $600 million (let’s round that out to half a billion dollars). When you add all these projected losses up, the industry anticipates to be out $5.5 billion this year, while expecting to keep this negative pace into the future.

Credit Card ACT
A delicate balancing act. Source

One of the rules that puts a tear to a banker’s eye is this one: card companies, financial institutions and banks are now restricted by how they can raise your APR. But with the ink barely dry on the legislation, our beloved banks have lost no time looking for other sources of revenue to compensate for these losses. For instance, I’m sure you’ve heard those dreadful rumors about how banks and card issuers are now thinking of introducing new annual fees to their cards. The tactic here involves shifting the costs to all card holders (the whole universe of customers) when the burden of the cost used to sit on the shoulders of those who carried balances (a subset of the universe). I’m not going to be happy if this is how things will be evolving in the card industry.

With The New Credit Card Laws In Effect, What’s Next?

Here are those things that may come down the pike, as card issuers scramble to deflect some of the pain resulting from the new rules:

1. Watch out for higher fees. We’ll probably start seeing new fees and increases to existing fees, particularly for new customers. Balance transfer credit cards with transfer fees are a potential target for this type of change.

2. Credit card rewards may be limited. This is not good news to people like me who don’t carry a balance and who carry cards mainly for the convenience AND the credit card rewards.

3. It will be harder to get a card. What good is a 0% APR credit card offer if you can’t qualify for it? Them’s the breaks.

4. Rates can still increase. Will low interest rate credit cards become extinct? Well I may be exaggerating a little — after all, these laws were enacted precisely to protect us from unjustifiable rate increases. But under certain circumstances, your card interest rates can still go up. There’s no provision in the Credit Card Act that necessarily protects misbehaving customers (e.g. those who don’t pay on time) from rate hikes.

It’s stuff like this that annoys me — as consumers, we’re supposed to be benefiting from legal changes that are designed to protect us. Instead, big business will find ways to circumvent any negative effects that are aimed squarely at them. Some of that will spill over and be passed onto us customers. So I’m not sure that we should all be necessarily jumping for joy until the dust settles on this matter and we see what actions (or self-preserving moves) are ultimately made by the industry.

Here’s where we reflect on the subject further:

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{ 10 comments… read them below or add one }

johnny davi February 22, 2010 at 7:09 pm

This still benefits the banks and credit card companies. Please cry me a river! what they are “losing ” they make up 38 billion a year in overdraft fees also, do not get it twisted; all this does is slow them down on how fast they can raise the rates and how quick to charge a fee. there is no limit on the rates …just google” first premier 79%” or check out my article “thank you mr president” which because of the new reform first premier already found the loophole…
what the people do not get is the banks throw some much money at the congressional senate to pull the wool over the public eyes. The bk reform act of 2005, made it harder to file chap 7 and most are chap 13 where you still pay back 100% stop letting them fool you!

Most of the public has no idea that there is a “floor rate” where the rates are now tied to a adjustable market and if it goes to low the cards will not go below 14%; why can’t we all just be debt free like me? I love the post!

Mr Credit Card February 22, 2010 at 7:21 pm

To be honest, I think life goes on. Changes have already been made. Cash back rewards have been reduced. Perhaps less students will get credit cards which is not a bad thing. Subprime issuers will see their profits taking a hit because they cannot charge ridiculous fees anymore…

Keith Morris February 22, 2010 at 8:45 pm

Is there any chance one of these banks might just eat the cost in order to remain competitive, in hopes that they will make up the loss by increasing their market share? Probably not.

As far as consumers are concerned, the important thing is to make sure to read the fine print, especially now that banks are going to be looking for ways to make back the money they’re losing to this new set of laws.

John @ February 22, 2010 at 9:59 pm

So glad I don’t have to worry about my credit cards. Right now, they’re sitting in a landfill where they belong! Great article on the new laws and how they may change credit card companies.

Silicon Valley Blogger February 22, 2010 at 11:27 pm

I was counting on someone to give your point of view! Indeed, there’s no impact to you if you’re a cash-only consumer. If only we could wean ourselves from credit cards as you have! But for many of us, it’s easier said than done. I, for one, feel a little paranoid when I have cash on my person…. These plastic things just make everything so easy. I still think cards are a great thing to use if you can wield them responsibly.

Now with regards to annual fees? If it becomes the norm, over time, I doubt very much it will make a difference to the card carrying public. I agree with Mr. Credit Card — life will go on… These changes will just be one more thing we accept for the “privilege” of owning a card.

basicmoneytips February 23, 2010 at 5:44 am

Don’t get me wrong, credit card companies can be spineless, but at the end of the day, we as the cardholder have the responsibiliy to make sound decisions.

One thing I particularly like about the new legislation is the one that states over limit fees can be applied only if the consumer agrees that they be allowed to go over the credit limit.

This one I never liked – you have a credit limit for a reason. If you go over it the transaction should be declined, end of story.

Ryan - New Hampshire Attorney February 23, 2010 at 8:13 am

Great information and wonderful comments.

These changes (intended and unintended) are definitely going to be a tough pill for many people to swallow, but it’s a much needed step in the direction of delayed gratification. Credit cards are great – if you can pay them off within a few months. Switching back to the mentality of, “I can only buy it if I have the cash to back it up” would be wonderful for Americans. Ideally, credit cards should only be used in cases of emergency.

Thanks again for sharing.

To blame only individual consumers or the credit card companies is wrong, too, though. Greed has been rampant on both ends – we’re all to blame, and it’s time we start changing some of our habits for the better. We enabled them to be greedy and they enabled us by freely giving us cards. Responsibility is key – but definitely is tough if you’ve never been told “no.”

Awareness Home Funding February 23, 2010 at 1:34 pm

Consumers still have the final vote here. We vote with our money – where and how we spend it. If we go back to using cash, we win. If we use the cards responsibly (whoa) and pay off the balance, in full , every month, we win. Those who carry balances and use credit cards as a way to finance their life as a way to live beyond their means will reap the obvious consequences. From this perspective perhaps the credit card companies are doing us a favor by making us rethink how we manage our money???

John February 24, 2010 at 8:21 am

This really won’t have an impact on me. I pay off my credit card every month so the interest rate hikes don’t matter — charge me 100% interest I don’t care, 100% on a zero balance is still zero. Now, if they decide to start laying out annual fees, I’ll just cancel the card and use cash — really, cash equivalents by using my check-cards.

Credit Card Chaser February 24, 2010 at 8:26 pm

Also check out this 5,000 word guide to the CARD Act with a short “In a Nutshell” synopsis of each major change.

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