New Laws Trouble Banks

With the credit card debts falling and the consumers turning their backs on credit cards, the banks may face more dangers, many experts say.

Banks are now limiting their credit restrictions disabling some consumers to apply for new credit. New rules have been integrated in banks forcing them to increase critical perceptions of an ideal creditworthy customer which is rare in the present situation with unemployment on the run. With the limited credit policies, consumers are getting less credit limits and increased interest rates, forcing others to close their credit accounts.

Individual consumers aren’t the only ones who have decreased their reliance on credit cards as their financial saviors. Even companies have abandoned the banks since they have kept enough cash in their coffers that would keep them alive and restored after the recession.

The demands for loans will remain very weak, says Richard Staite, a banking analyst from Atlantic Equities that surveys several large banks in the US.

With their lost customers, many banks would want to make up for their current and present losses by attracting their big customers with rewards. For instance, on July 1, Chase’s reward program, Ultimate Rewards launched an ad campaign explaining the benefits of its cards. Target Corp also announced a 5 percent discount daily for fall shoppers upon each use of Redcards, Target credit cards and Target check cards.

The new bank bill is more difficult to handle as it affects the banks again. Among the text is a regulation about banks verifying the consumers’ ability-to-pay background through their income. This new law prevents banks from making “liar loans”. Many banks have already started the practice but it will take time before its universality will be applied. Banning overdraft fees, or fees charged to customers who withdraws more cash than the cash reflected in their balances, are also part of the new bill. Merchant fees or swipe fees on debit cards will also be banned. The totality of these bans will hurt the banks’ revenues. The 2,300-page bill has to be studied more before it would be turned to a law.

Since the law hasn’t been passed, banks can still have more time to raise their revenues. Even with few customers, banks can still take the opportunity to heighten their fees. Annual fees for credit cards will backed up by attracting customers with rewards. Banks can also take advantage of existing credit holders who are in the brink of getting unqualified due to the new policies.

Many small income customers and small businesses have been complaining with banks’ practices. According to them, the banks have been selfish by threatening to decrease their credit limits since the lending restrictions have changed. These small time customers will be charged higher interests and lower credit limits since their credit scores are low even though most of these customers have managed to make timely payments. As of now, the government is still considering a bill that would require an allotted $30 billion dollars to offer aid to small businesses who are in debt troubles.