Credit card companies are trying to go around new legislation and tougher regulations aimed at curbing abusive industry practices. This, according to financial analysts and credit experts. With the new law set to take full effect next year, card issuers are on the offensive to find new ways to milk more money from millions of American cardholders.
Because the new rules will severely restrict some of the credit industry’s practices, card issuers are looking for alternative means to generate revenues. Some of these have been called redlining and unmistakably near-illegal by many consumer advocacy groups. As the deadline for the new regulations nears, card firms are finding new ways around the legislation. Experts say that while the tougher rules are a welcome relief, they are in no way foolproof. They point out that even if banks and card issuers will be required to inform their clients of changes much earlier, not all cardholders will be able to avail of the protection the regulations entail.
Even before sudden interest rate hikes were prohibited earlier this year, card companies have made a killing by preempting the restrictions. Just after the recession took hold, card firms and banks raised interest rates considerably, leading to many cardholders shelling out substantially more for their monthly minimums. In fact, most card companies raised interest rates by 10 percent or even more. This means that American consumers have been paying off their balances plus 20 percent or more interest rates for the past year or so before the new law was enacted.
Financial experts say that card issuers have had a long history of reinventing themselves and looking for legal loopholes even in the face of tougher regulations. For instance, the law calls for card companies to inform their cardholders 45 days in advance before enacting any changes to the interest rates. The legislation, however, does not cover variable-rate cards, which have changing interest rates. Analysts say that banks are making the most out of this loophole and switching their clients cards into variable-rate cards to avoid the restrictions. Already, some 75 percent of all credit cards in the U.S. are variable-rate cards, up from 65 percent in 2008.
The law also prohibits card companies from imposing fees when cardholders go over their credit limits. In lieu of these fines, card issuers are imposing new penalties for other reasons to make up for lost revenues. Some firms have even resorted to charging clients a fine for inactive cards.
Analysts also point out that many card firms are now shifting their attention to clients who actually pay off their balances, instead of going after cardholders who fail to settle debts.