Credit Card Changes Hurting Low And Mid Level Consumers
Recently, Congress created the Credit Card Accountability, Responsibility and Disclosure Act or Credit CARD Act, aiming to protect consumers from arbitrary rate hikes issued by credit card companies.
The Credit CARD Act was not scheduled for immediate activation however. The entirety of the Act was scheduled for activation on February of 2010, though some parts of it were activated last August. The delayed activation was to allow credit card companies enough time to adapt to the new requirements of the Credit CARD Act. This turned out to be an over optimistic expectation.
As evidenced by their recent actions, credit card companies took the grace period allowed to them as their chance to generate as much profits as possible, even at the expense of their clients, instead. Examples are the extravagant hikes on interests, fees and monthly minimum rates. Credit card companies have also opted to circumvent the requirements of the Act instead of complying with it. An example of this is the recent move of major credit card companies to transfer their fixed rate interest credit cards to variable rates. Variable rate interest credit cards are exempt from the requirement of credit card companies to give 45 day notice to any interest changes and allowing credit cardholders to opt out of the said changes.
The government has taken notice of these practices and, recently, Barney Frank, the Chairman of the House Financial Services Committee voiced accusations against banks of abusing the grace period allowed to them before the Credit CARD Act takes full effect.
The actions of the credit card companies will most likely have a disastrous effect among credit card holders, depending on their financial situation. According to research and advocacy organization Démos, a nonpartisan group, households with low to middle income levels that have a high debt-stress level generally rely on their credit cards to cover expenses for household necessities and medical expenses as well in a time of job loss. A household’s debt-stress level is the ratio of the credit card debt of the household and the annual income it generates. Démos’ research shows that, when credit card companies introduce major changes in credit card policies, the hardest hit will be low to mid income households with credit cards.
As credit card companies continue to make credit much more expensive, many credit cardholders have decided to reduce their debts resulting in the decline of revolving debt. However, for many low to middle income households, this is just not an option. What is even more distressing is that many of the changes happening in credit card policies are making it difficult for credit card holders to protect themselves.
