Credit Card Industry Shifting To Meet Economic Times, New Legislation

The economic crisis may be blamed for introducing one of the most comprehensive shifts in the credit card industry. Partly caused by credit card industry practices itself, the economic crisis has forced both consumers and banks to rethink how they view credit. What is coming out of all that is a credit climate where the cost of credit is getting to a point that it might just outweigh the benefits that it offers.

According to Dick Reed, Consumer Credit Counseling Service of Greater Atlanta’s debt management team manager, a lot of credit card companies have increased their rates to 27% to 30% highs. For many card holders who carry credit balances, these changes have created “havoc with their budgets”.

Credit card companies are saying that the changes in credit terms are a necessity of the times. American Bankers Association spokesman says, “By and large the industry is not profitable”.

However, many are still questioning whether the recent changes in credit card accounts are actually not an attempt by credit card companies to make advance adjustments before the activation of the Credit CARD Act which is on February of next year.

The Credit CARD (Card Accountability, Responsibility and Disclosure) Act of 2009 was created early this year to introduce more protection for credit card holders against the unfair practices of credit card companies. One of the biggest changes that it will bring is the banning of arbitrary term changes in credit card accounts. Under the new legislation, credit card holders may not get interest rate hikes on their balances if they pay on time. If they do miss a payment, their rates can be increased. If they then continue to make on time payments afterwards, their previous rates are returned. The legislation will also bring other reforms such as longer notices for term changes, complete disclosure in credit card statements and limiting access to credit cards for consumers under 21.

Since the signing of the Credit CARD Act, credit card companies have made a number of changes in their credit card terms such as raising interest rates, lowering available credit, raising fees, adding new fees and raising the monthly payment rates. These have naturally had disastrous effects on credit card holders resulting in the U.S. House voting to speed up the activation of the Credit CARD Act to bring protection earlier to consumers. The Senate is yet to approve the bill, however.

As the Senate continues to debate the merits of speeding up the activation date of the Act, changes in the credit industry continue. Industry experts predict more strategies to come out as credit card companies find ways to restore profits. Annual fees may become commonplace and variable rate credit cards as well. Reward cards may begin to become rare.