Credit Cards » Credit Card News » A Preview Of What The Credit Card Bill Will Bring Cardholders
Date June 17, 2009

A Preview Of What The Credit Card Bill Will Bring Cardholders

When the credit card bill was passed last May 22, credit cardholders in the United States were elated, expecting a slew of changes in credit card industry practices which will benefit them.

A Preview Of What The Credit Card Bill Will Bring CardholdersWhile it is true that the credit card bill will put a stop to some of the more predatory practices of the credit card industry, the changes that the credit card bill will bring will actually have both a positive and a negative effect on credit cardholders. What follows is a list of the pros and cons that the credit card bill legislation will bring once it becomes active on the first quarter of 2010.

Pros

1. Credit card companies will have to mail monthly statements a minimum of 21 days before the statement’s due date.
In a situation where there are multiple debts to be paid off, payments to the credit card will go to the debt having the highest interest rate. Currently, the reverse is true.

2. Credit card introductory rates are to remain active for a minimum of one year. If the credit card company wants to raise rates after that, it is required to give the cardholder notice 45 days before the interest rate is to be increased. Currently, the minimum is only 15 days notice.

3. Double billing cycles will no longer be allowed. Currently, double billing cycles are the bane for credit cardholders who transition from full monthly payments to carrying a balance. Double billing eliminates the period of no interest in between the transition.

4. Credit card companies have to make full disclosure of their practices. One very useful result of this legislation is requiring credit companies to inform their customers how much will be the total cost and how long paying off the debt will take if the customer only pays the minimum amount due every month.

Cons

1. The interim period before the credit card bill takes effect will see many credit card companies raising interest rates and fees; essentially doing everything they can to increase profits. Consumers can also expect higher introductory interest rates as banks won’t be able to raise them for at least a year.

2. A cut back on available credit is expected as credit companies try to cover their profit losses caused by the new legislation.

3. Annual fees and other kinds of charges are going to be making a comeback to generate more income for credit card companies. Even cardholders with great credit card ratings won’t be spared.

4. People with low credit card ratings will have a harder time securing credit, especially through unsecured credit cards. An option is a secured card. This type of card will require a deposit.

Date June 7, 2009

Interchange Fees Finally Getting Some Attention From Legislators

When the credit card bill was released, merchants were less than pleased that they had been left out.

Interchange Fees Finally Getting Some Attention From LegislatorsWhile addressing many unfair credit industry practices such as unfairly high interest rates and fees and obfuscated business practices, the credit car bill left out merchant’s pet credit industry peeve: interchange fees.

Merchants pay an interchange fee every time their customers buy from them using credit cards. These fees average at about 1.75 percent of a credit cardholder’s purchase fees. Depending on the credit card company, interchange fees can range from 1.6 percent to more than 2 percent. Interchange fees end up being quite a burden for merchants. Part of the fees also are also being passed on to consumers which end up increasing merchandise prices.

A new measure being focused on in Washington called the Credit Card Fair Fee Act is expected to address the issue of interchange fees. The legislation will focus on giving negotiation powers to merchants so that they can arrange for reduced costs with their banks regarding credit card purchases. Currently, the legislation has just been introduced in the House of Representatives of the U.S. If it turns out to be successful, it will lighten the burden of interchange fees from a whole range of merchants such as restaurants, shops and service stations.

Currently, Mastercard and Visa, the two major payment networks, have power over setting the fee structure for credit card payments. They also control around three fourths of the total number of transactions for general purpose cards. American Express and Discover use their own system.

Complaints about the system have been coming from merchants for a long time and lawmakers have recently joined in. The major complaint is that merchants are blocked from negotiating a more advantageous fee structure for themselves with the Mastercard and Visa payment networks. There have also been complaints about collusion among banks to control the fee structure to their advantage and to block negotiations for lower fees from merchants.

If this new interchange fee bill is enacted, merchants will have more power to negotiate with banks for terms and rates. The Department of Justice will also have an antitrust attorney present during these negotiations.

When the credit card bill was passed recently, the credit industry heaved a sigh of relief over the fact that did not touch interchange fees, at least. However, with this new Credit Card Fair Fee Act making the rounds in the House, the industry may be facing another challenge as credit card companies seek to minimize their losses and restore profits amidst increasing defaults and declining spending.

Date May 29, 2009

Credit Card Industry Earnings Likely to Drop

The credit card industry is in an uproar over the legislations in the recently passed credit card bill. The credit card bill is aimed at legislating many credit card industry practices that cardholders see as unfair and deceitful. For the credit card industry, the credit card bill is a disastrous piece of legislation which will destroy their profitability and, according to them, limit the available credit for American consumers.

Credit Card Industry Earnings Likely to DropDuring the past few years, the credit card industry has enjoyed high profitability. Many see that this is coming to an end. Although many see the credit card bill as the main reason for this, it may only be one of many factors.

Although the credit card industry is currently preoccupied with the threat of the credit card bill legislations, it is important to remember that the profitability of the industry was already going down even before talks of the credit card bill surfaced.

With the economic crisis, credit cardholders were unable to keep up with their monthly payments. Whereas many of those who struggled with credit card debt were able to at least keep up with the minimum monthly payments, they were ultimately defaulting when the economic crash came. The increase in credit card debt defaults greatly hurt the credit industry. Aside from that, it also proved wrong one common boast in the credit card industry: their capability to analyze a borrower’s risk and balance with the right interest rate.

Credit cardholder dissatisfaction over high interest rates and large financial fees is also another factor to consider. Considered the root cause of the credit card bill and its popularity, the dissatisfaction of credit cardholders over many of the practices of the credit card industry has been going on for some time. It was only a matter of time before the issue blew up on the credit card industry.

Now, with the credit card bill in place, credit cardholders are going to get the changes that they have been clamoring for. Unfortunately, many of these changes are going to hurt the credit card companies. The legislations on full disclosure of agreements and restrictions on interest hikes and financial fees will hurt the credit card industry the most.

In the past, the credit card industry has profited greatly from credit cardholders who were unable to pay off their monthly bills but did not default, only paying off penalty fees. The impact is hard to calculate, given the credit card industry’s reluctance to release any figures. Many, however, consider the amount to be quite high.

The credit card controversies, coupled with the economic crisis, have also given American consumers a crash course on financial responsibility. Many of them are going to be more careful with their credit card purchases, limiting credit card industry’s previously large profits from subprime borrowers.

Date May 28, 2009

Dodd Sees More Work Ahead after Credit Card Bill Passes

Last Friday afternoon, President Barack Obama and key personalities from congress gathered in the White House for the signing of the credit card bill.

Dodd Sees More Work Ahead after Credit Card Bill PassesThe credit card bill is a controversial bill that aims to correct what many see to be the fraudulent and deceptive practices of the credit industry. Amidst the outcry of overburdened credit cardholders, the President and the Congress responded with a bill that curtails arbitrary interest rate increases, protects cardholders paying off debts, and demands more transparency from credit card companies, especially with their credit card agreements.

The bill has its share of supporters and detractors. Credit cardholders, the main group to benefit from the legislation, are excited to see what the bill can do for them. However, many see that more could have been done with the bill. The credit industry, the target of the bill’s legislation, has been adamant that the passing of the bill will be detrimental – not only to the credit industry but to consumers themselves.

The President and the Congress have deliberated and seen to it that the credit card bill provides a middle ground for both sides of the argument. During the signing, President Obama stressed the point saying, “We’re not going to give people a free pass. We expect consumers to live within their means and pay what they owe. But we also expect financial institutions to act with the same sense of responsibility that the American people aspire to in their own lives.”

Sen. Chris Dodd called the credit card bill “the strongest piece of consumer legislation that has been passed in Washington in a decade”. However, he also said that there is still a lot of work to do with regarding unfair credit card industry practices.

During a conference call last Friday, Sen. Dodd said that two major problem areas in credit industry practices still need to be addressed: unlimited interest rates and high merchant fees. The senator stated that there is still a need to create some kind of legislation that will put a limit on how much interest credit card companies can issue and on the fees that merchants have to pay to credit card companies when customers pay with plastic.

These two issues were already heavily debated when the credit card bill was being deliberated in the Senate. In the Senate, a proposal putting a 15% cap on interest rates was ultimately killed by the strong lobbying of the credit industry and by worries in the Senate that the proposal might ultimately kill the credit card overhaul package.

Sen. Dodd has not given up on these issues and is already making preliminary steps to pursue legislation on interest rate caps and regulation of merchant fees.