Next Year's Credit Card Regulations Already Outdated
George Boelcke FCI
October 11, 2009
When the much heralded Credit Card Accountability, Responsibility & Disclosure Act of 2009 was passed in May, I commented that it was a lot like Swiss cheese. Within five minutes I had come up with over a dozen angles, traps, and alternate ways card issuers would reach into their customerīs pockets.
Some of these "rule avoiders" are already reality, or in the works, and much of the legislation wonīt even be in place until February. But, as millions of card holders know, raising rates is one area where card issuers have made a killing before the new regulations even take effect. It didnīt matter whether someone had never been in arrears, never missed a payment, or ever carried a balance. Their rates increased, or they were blackmailed into higher minimum payments to keep any attractive rate.
The new credit card rules did not prevent massive rate increases, because the act had a lead time of almost one year! By now, for most people, itīs too late. But there is also the worldīs biggest loophole: Cards on a variable interest rate arenīt included in the rate increase restrictions! And thatīs more than 65% of all cards already. In other words, the much heralded regulations only apply to less than one-third of card holders.
By now, issuers have been very busy moving the 35% of fixed-rate accounts to a variable rate. According to Bankrate.com, that will happen to another 10%. The bottom line: Less than 25% of card holders (and dropping) will get any protection from exploding rates.
Now that the average card rate is over 15%, issuers are focusing on more fees as well. If the legislation wonīt let them charge over limit fees unless there have been arrears, there are certainly a ton of other fees that can be increased or invented. To start, inactivity fees are now showing up, as well as fee-based products, and annual card fees. Merchant fees, and their discount percentages, which are all the charges retailers pay for the right to accept credit cards, are also going through the roof, and you can bet retailers will pass those costs on to their customers. What choice do they have? Theyīre hostage to card issuers, because they certainly canīt refuse to accept credit cards!
Some heavy-duty marketing has now re-started for small business cards. Why? Because none of the new credit card regulations apply! It may make someone feel special to have a card in the name of their business, but it will also make them very broke in being fully responsible for any fraudulent charges, the sky is the limit rate increases, and full personal liability if the business fails.
As marketing cards on campus and to students becomes restricted, card issuers are already planning where they can now set up the "free T-shirt" traps next. Two blocks away would certainly work, and marketing directly to students and parents has already started.
At least the good news, according to a Consumer Report study, is that 32% of us have closed at least one credit card. Itīs just that we have a number to go! And 45% of us are charging less on our cards.
In the spring, lenders were screaming that they would go out of business, and many politicians called it a great victory for card holders. But what are the odds that Congress will now re-address the issue and close many of these loopholes? None. Oh sure, there are, and will be, a lot of hearings, but donīt confuse hearings with actions to close the loopholes which have already become evident.
Some of these "rule avoiders" are already reality, or in the works, and much of the legislation wonīt even be in place until February. But, as millions of card holders know, raising rates is one area where card issuers have made a killing before the new regulations even take effect. It didnīt matter whether someone had never been in arrears, never missed a payment, or ever carried a balance. Their rates increased, or they were blackmailed into higher minimum payments to keep any attractive rate.
The new credit card rules did not prevent massive rate increases, because the act had a lead time of almost one year! By now, for most people, itīs too late. But there is also the worldīs biggest loophole: Cards on a variable interest rate arenīt included in the rate increase restrictions! And thatīs more than 65% of all cards already. In other words, the much heralded regulations only apply to less than one-third of card holders.
By now, issuers have been very busy moving the 35% of fixed-rate accounts to a variable rate. According to Bankrate.com, that will happen to another 10%. The bottom line: Less than 25% of card holders (and dropping) will get any protection from exploding rates.
Now that the average card rate is over 15%, issuers are focusing on more fees as well. If the legislation wonīt let them charge over limit fees unless there have been arrears, there are certainly a ton of other fees that can be increased or invented. To start, inactivity fees are now showing up, as well as fee-based products, and annual card fees. Merchant fees, and their discount percentages, which are all the charges retailers pay for the right to accept credit cards, are also going through the roof, and you can bet retailers will pass those costs on to their customers. What choice do they have? Theyīre hostage to card issuers, because they certainly canīt refuse to accept credit cards!
Some heavy-duty marketing has now re-started for small business cards. Why? Because none of the new credit card regulations apply! It may make someone feel special to have a card in the name of their business, but it will also make them very broke in being fully responsible for any fraudulent charges, the sky is the limit rate increases, and full personal liability if the business fails.
As marketing cards on campus and to students becomes restricted, card issuers are already planning where they can now set up the "free T-shirt" traps next. Two blocks away would certainly work, and marketing directly to students and parents has already started.
At least the good news, according to a Consumer Report study, is that 32% of us have closed at least one credit card. Itīs just that we have a number to go! And 45% of us are charging less on our cards.
In the spring, lenders were screaming that they would go out of business, and many politicians called it a great victory for card holders. But what are the odds that Congress will now re-address the issue and close many of these loopholes? None. Oh sure, there are, and will be, a lot of hearings, but donīt confuse hearings with actions to close the loopholes which have already become evident.
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