Banks May Lose as Much as $50 Billion Due to New Credit Regulations

Credit card institutions, banks and lending companies are anticipating to lose an estimated $50 billion this year as soon as new rules on credit card policies will be set in place.

Credit companies and banks are racing to find ways and means for the anticipated loses as, in many cases, consumers’ credit cards have been targeted to compensate for losses and to raise revenues quickly.

The effect of the February implementation of the Credit Card Act of 2009 has caused companies to resort to dire measures. Some measures include switching fixed interest rate cards to variable rates to escape the scope of the new rules, launching cards with annual fees and the closing of accounts.

Case in point, credit institutions have still managed to collect as much as $22.9 billion in penalty fees last year in comparison to $19 billion in 2008.

Adam Levin, a credit card advocate and educator, said that he has observed interest rates go up by as much as 12 to 15% as several companies scramble by means of “front-running the laws.”

Consumers have already felt the sharp end of the stick as they fall prey to new fees, higher interest rates and several new charges which may include charges for monthly financial statements.

A Citigroup spokesperson commented, “We understand that customers don’t like price increases, especially in difficult economic times. However, these actions are necessary given customers not paying back their loans and regulatory changes.”

A Bank of America release explained that unless a particular account is late on two payments within a span of 12 months, it was not raising its rates.

Credit clients, according to a statement from American Bankers Association Vice-President Nessa Feddis, are granted ample amount of time to be fairly warned before current credit cards are charged with any increases on interest rate hikes.

Feddis further assured that a 45-day notice is given to customers so that they are given the option to opt out of the increase as well as providing lee-way to look for other card providers. However, credit clients can be dropped by the lending institution, as in several cases, as a result of opting out.

The credit card act of 2009 intends to offer customer protection against unfair or deceptive practices which was designed to expand client safety nets, promote fewer fees and more clarity in transparency when it came to credit policies.

In February this year, several new regulations will be set in full force including a provision that limits rate hikes as well as the credit amounts that student card holders can avail of.