Consumers heaved a sigh of relief when, last May, President Barack Obama signed into law the credit card bill which was fast tracked through Congress and released also this May. Consumers are seeing the credit card bill as a great equalizer which will give them better control over their credit and curtail the unfair and abusive practices of credit card companies.
However, credit industry insiders are warning that the credit card bill may not be as consumer friendly as it sounds.
For the past years, credit companies had been profiting greatly, expanding available credit without taking into account the rising debt of cardholders and profiting mainly from high interest rates and large fees instead of debt payments. When the economic crisis hit, the credit industry found itself in a financial dilemma, burdened with toxic assets and increasing defaults. As a way to salvage what they could, they raised interest rates to astronomical levels and increased fees.
With the credit card bill in place, cardholders are hoping that things are going to change for the better for them, credit wise. However, if credit industry experts are to be believed, their sense of relief may be misplaced.
While the credit card bill does provide legislation which will make credit card practices less predatory and more consumer friendly, these same legislation will also mean that credit cardholders are going to have to deal with credit that is harder to get. For instance, the legislation limiting the capabilities of credit card companies to adjust interest rates of an existing debt means that credit card companies are going to be offering higher interest rates at the very start. It won't matter either how good of a borrower the credit cardholder is.
Credit card companies see adjusting interest rates on an existing debt as a way to adapt the specific credit line according to the risk exposure of the cardholder. Without this capability, they say that they have no other choice but to spread their risks across their customers, regardless of risk. What this means is that, if a one cardholder is not able to pay the interest rate commensurate to the risk that he or she poses for the credit company, then all the other customers of that company have to pay a higher interest rate as a result.
Whether this scenario will actually happen or not still remains to be seen, cardholder advocates counter. Credit cardholders are getting smarter about managing their credit and, with the disclosure amendments in place, they can make much more intelligent decisions. Competition among credit card companies is another factor in their favor as well.