Today federal regulators announced a number of pro-consumer changes to the credit card industry that are slated to take effect in July 2010. Most consumers would benefit from a change that ends the practice of credit card companies increasing the interest rate on accounts carrying a balance.
As expected, banks and other card issuers were less than pleased with this change, claiming that credit would be tightened and cards more difficult to get. One study pegged the cost of the new rules for the banking industry as $10 billion a year.
Previously I’ve had this sort of game played on accounts I’ve had, with one card issuer who shall remain unnamed (hint: it’s not in my wallet anymore!) deciding to jump my interest rate from 7.9% to 12.9% while I had an outstanding balance. Never mind I paid the bills on time and generally well over the minimum monthly payment! Fortunately I read the change in terms that was enclosed with my bill and opted out, allowing the company to close the account while I paid it off at the lower rate. Most likely they decided to penalize me since I wasn’t using their card to make purchases.
With this drop-dead date all but certain, I can see 2009 as a year of transition for credit card issuers. Already I’ve had one card issuer tell me that effective early next year, my card will suddenly have a $10 monthly fee attached to it. (They must be mad because I’m taking my sweet time paying off a balance they’re charging 3.99% interest on for the life of the offer. No one told them to offer me that deal, and I would have been a fool not to take it and cut my interest rates and payments significantly.) Fortunately I have plenty of room elsewhere to transfer the balance should I choose to do so.
That’s one practice which doesn’t appear to be placed off-limits by the new rules. Also there’s no restriction on changing the interest rates on future purchases significantly, so anticipate any new items purchased after July 2010 on existing accounts to be placed at higher rates. Moreover, credit card companies will likely put the squeeze on consumers like me who pay more than the minimum payment in an effort to get out from under debt by raising interest rates in the latter half of 2009 and early 2010.
By providing a long lead time for these rule changes, the federal government is attempting to keep the credit spigot relatively open for another eighteen months – while credit remains tight – before locking out much of the subprime credit market by making it much less lucrative for lenders to inhabit. Some of these cards for people with poor credit are comparable interest- and fee-wise to payday loan outlets but consumers have little choice in the matter if they want to build or rebuild credit.
The lead time will also provide a chance for lobbyists and lawyers to squint through all the fine print and points of law in the rules and work out ways to avoid making these new restrictions hurt the card companies’ bottom line. In other words, the phrase caveat emptor applies more than ever.
