The credit card industry has issued warnings that the passage of the credit card bill will mean that credit will no longer be available to some consumers.
Following a huge outcry from consumers, President Barack Obama and the congress have made a legislation that aims to correct certain practices of the credit card industry, which many consider to be deceitful and unfair. There is a high probability that the legislation will be placed on the President's desk by Tuesday next week. With the passage of the bill, the credit card industry will experience sweeping changes that will most likely have a negative impact on the profitability of credit card companies. The dire warnings of the credit card industry are most likely to come true as well.
In response to credit industry warnings of credit drying up for some consumers, the government is saying that it is fine with it. Backing up the stance of the government, many senators have been commenting that if getting credit comes at the cost of the credit cardholder not being able to pay it off, then the consumer is better off not having any in the first place.
The biggest impact that the credit card bill will have will be in the credit card industry, however. The most affected will be credit card issuers who issue credit cards to people with low credit scores. Some of these issuers survive on people who are unable to keep up with their monthly balances by having higher interest rates and more stringent penalties. The legislation in the bill will expressly stop this kind of flagrant abuse. Other industry players will also experience a slow down of profits as the legislation puts limits on interest rate hikes. For instance, a provision on the bill requires that if a customer gets an interest rate increase because of late payments, the issuer must lower the interest rate if the customer is able to pay on time for six consecutive months.
Austan Goolsbee, economic advisor of the White House, said in an interview that, “There's nothing that says credit-card companies need to maintain exactly the same profit rates that they have when there aren't rules on the road”.
“We’ve gotten into situations where some of the most egregious actors have pushed us to the point where it’s like, ‘Well if you didn’t want to be mugged, you shouldn’t have been walking out in the park because everyone knows there’s muggers out here,’ the economic advisor further elaborated.