Credit Card Regulations May Have Unintended Negative Consequences

Written by Joe Taylor Jr.
Posted On: May 27, 2009

President Obama Signs Credit Card Act Into Law
As President Obama signed a new Credit Card Bill into law, financial industry analysts debated whether tough, new regulations would return America's consumers to a more responsible era or throw the sector into a tailspin. Major provisions of the new credit card law include:

• Strict limits on marketing to college students and other prospective cardholders under the age of 21.
• Preventing cardholder accounts from being charged beyond their limits, unless cardholders have authorized over-limit activity (and over-limit fees) in advance.
  Clearer disclosure of credit card interest rates and repayment estimates, using standard text sizes and styles.
• Tougher rules related to raising interest rates on delinquent cardholders, with clear paths to rehabilitate credit card accounts.

Consumer advocates hailed the new law as a major step toward decreasing personal debt in the United States. Upon passage by the House, earlier in the week, Consumers Union spokesperson Pamela Banks told reporters, "Consumers got fed up, they spoke out, and Congress approved reforms by an overwhelming margin." However, the news sent financial stocks into a tailspin, as investors grew concerned about the impact on credit card companies' bottom lines when the law takes effect in February 2010. This type of impact is not likely to help alleviate the credit freeze that the industry has been witnessing for quite some time.

Some consumer advocates, however, are concerned about a potential negative backlash for consumers. Although CardRatings.com founder Curtis Arnold thinks that some degree of regulation is definitely needed, he is concerned about the response of the credit card industry. "I definitely think average credit card rates will rise in the next 6-12 months. We are already seeing this, but the legislation will likely accelerate this trend. We may also see new types of fees crop up that we’ve never seen before." said Arnold.

Do you feel these credit card restrictions will positively or negatively affect consumers? Tell how you feel about it in our credit card forum.