Unless you have too busy been following the lightning-fast paced Olympic Curling contests, you have no doubt heard about the changes to the credit card laws brought about by The Credit Card Accountability Responsibility and Disclosure Act (The CARD Act). We have had almost five business days to digest some of these changes, so this article is going to look at some of the reactions to the new laws, how they are affecting people and businesses, and what are the credit card issuers doing in response to the legislation. With news organizations, politicians, associations and any clown with a blog (like me) weighing in, there is no shortage of material. We will keep digesting the information. Please leave a comment if you have a specific question!
The Law of Unintended Consequences
This is one law that is as old as time itself and like the laws of physics, the law of unintended consequences cannot be broken. One such consequence is that banks, in anticipation of the new law’s February 22, 2010 deadline, have raised rates and cut credit limits. Apparently, the banks took some 16th Century wisdom and made hay while the sun was still shining. Banks are also adjusting the tier structure of late fees, still permitted under the Act. These issues were raised by Marlys Harris in a moneywatch.com post.
Additional examples were cited in an article by Polina Vlasenko in the Christian Science Monitor. The piece says the CARD Act’s limitations on raising interest for those with bad credit will result in borrowers with good credit being treated the same as borrowers with poor credit. Thus, according to Vlasenko, higher rates and increased fees will be forced on all cardholders. Another unintended consequence will be an increase in merchant fees (the fees paid by merchants for processing charges) as banks seek ways to make up for revenue lost from complying with the act. These increased fees will likely be passed onto the consumer.
Playing Defense with Your Credit
Like all legislation, as soon at it passed, those affected start looking for ways around it (gotta love lawyers). There are a few ways to make sure you get the benefits intended by the CARD Act if you are a consumer. First, pay more than your minimum balance. The Act requires that any payment above the minimum be applied to charges with the highest interest rate. That is good. However, it only applies to payments made above the minimum. (Section 104 of Credit Card Accountability Responsibility and Disclosure Act of 2009. 15 USC 1601)
Another, common sense way to play defense with your credit is to be knowledgeable about the terms and conditions of your credit cards. Banks have inundated us with modifications to credit terms, and if you do not read them, you stand to pay dearly. Knowing which cards are offering the best terms will allow you to “vote with your credit card.”
Another possible trap that is contained in the Act eliminated the right of an aggrieved cardholder to sue in court. Arbitration is now mandatory. This creates consequences that are both positive (arbitration is generally less expensive than litigation) and negative (arbitration clauses can be difficult to understand and require significant payments to arbitrators).
Age has its Advantages
One of the more wide-reaching aspects of the new legislation is that it will be difficult for those under 21 years old to get a credit card unless there is an adult willing to co-sign for the card. According a recent study by Sallie Mae, on average, college students carry over four credit cards with a record balance of $3,173. This same study claims only 17% of college students pay off their cards in full every month. On the downside, this will mean many young people are going to have a difficult time establishing credit. On the plus side, there should be a lot fewer students with crushing debt, fewer defaults and fewer bankruptcies. However, banks will need to replace the revenue they received from young cardholders that pay their cards off, with interest, over time.
The Summary so Far
As with most things, knowledge is power. Stay informed. Check back here for more updates and check out the expanding resource section of White Space Marketing. We will keep you up to date on all of the latest developments.
Have you had any dealings with your credit card company that you would be willing to share? We would love to hear it. Please leave your thoughts and comments. And please let us know if you have any questions.