Faster Credit CARD Act Activation Needs Careful Thought Says Bernanke

The activation of the Credit CARD Act isn’t until February of next year but, consumers, consumer advocates and members of the Congress are looking at activating the Act sooner. This comes as credit card companies continue to engage in practices, which are seriously hurting credit card holders.

As a reaction to the Credit CARD Act, credit card companies have been busy hiking fees and interest rates, introducing new fees, cutting down on credit and increasing minimum monthly payment rates, among other things, to boost profits and protect their profits from the limitations that the Credit CARD Act will bring.

The Credit CARD Act was drafted and signed earlier this year with overwhelming support from consumers and lawmakers. The Act aims to curtail the more predatory practices of credit card companies. Among other things, it will limit the capabilities of credit card companies to increase interest rates as well as charge fees, it will encourage transparency on credit card practices and it will protect sub prime consumers from credit card companies. The changes that the Credit CARD Act brings cuts heavily into the profit sources of credit card companies which is why they are doing what they are doing now.

Representative Barney Frank, unimpressed by what credit card companies are doing, recently introduced legislation that would move up the activation of the Credit CARD Act to December 1 instead of on February 22, 2010. If signed into law, this could mean earlier credit card protection for credit card holders. However, not everyone is convinced that this is such a good idea.

Ben Bernanke, Federal Reserve Chairman says that making the activation of the Act earlier maybe a double edged sword. True, earlier activation of the Act would mean credit card holders would get protection from abusive credit card company practices sooner but, there may be unwanted consequences, Bernanke believes. For instance, it would prevent consumers from voicing out their opinions regarding the new regulatory practices. It might also lead to problematic implementation of the new protections among credit card companies, Bernanke said. Bernanke expressed these opinions in a letter he sent to Alabama Representative Spencer Bachus who is the House Financial Services Committee’s highest ranking Republican.

In the letter, Bernanke wrote that an earlier activation of the Act “would mean that consumers would receive important benefits and protections earlier. Greater transparency will enhance competition in the marketplace and improve consumers’ ability to find products that meet their needs.” However, credit card companies also need enough time “to allow for an orderly transition and to avoid unintended consequences, compliance difficulties and potential liabilities”, Bernanke explained in the letter.