Credit Card Regulations May Have Unintended Negative Consequences

By Joe Taylor Jr., CardRatings.com Reporter



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.

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Joe Taylor Jr. is an internal business consultant for a Fortune 500 company, who writes about finance, culture, and design. He holds a Bachelor of Science in Communications from Ithaca College.

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CardRatings.com is the most comprehensive source for comparing credit card offers. CardRatings.com is pleased to offer consumers free credit card ratings.

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Please Note! You are welcome to republish this article as long as you state that CardRatings.com is the source for the article. You must also include a link to our website if you republish the article online. Click here for more details about using our articles and thank you for your interest!

Obama's Credit Card Reform Pledge on Thursday's Agenda

By Joe Taylor Jr., CardRatings.com Reporter

Credit card reform tops the agenda at a meeting of banking executives at the White House on Thursday. Treasury officials originally planned the event as a discussion about pending credit card legislation. However, the meeting made front page news when White House officials announced that President Obama will personally address attendees.

Responding to reporters' questions on April 20th, White House Press Secretary Robert Gibbs suggested that the President may demand credit card legislation that affects all lenders, not just TARP recipients. "I don't think the anger just is for bailed-out companies," said Gibbs. "There are companies that aren't getting money from the federal government that are involved in practices where people see their credit card rates skyrocket unbeknownst to them, or contained in paragraph 14 of some very small writing at the very end of a credit card contract."

Obama made credit card reform a major plank of his campaign platform, and revisited the message during a March trip to Costa Rica. Officials refuse to speculate about whether Obama will discuss a proposed "Credit Card Holders' Bill of Rights" at this week's meeting. The announcement of his presence at the event hints at major changes to credit card regulation on the horizon.

What do you think about these regulations and credit card reform in general? We welcome you to share your ideas on our active credit card forum.

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Joe Taylor Jr. is an internal business consultant for a Fortune 500 company, who writes about finance, culture, and design. He holds a Bachelor of Science in Communications from Ithaca College.

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CardRatings.com is the most comprehensive source for comparing credit card offers. CardRatings.com is pleased to offer consumers free credit card ratings.

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Please Note! You are welcome to republish this article as long as you state that CardRatings.com is the source for the article. You must also include a link to our website if you republish the article online. Click here for more details about using our articles and thank you for your interest!

Chase No Longer Increases Rates Based on Credit-Bureau Information

By Curtis Arnold, Founder of CardRatings.com


Chase is no longer increasing the rates of cardmembers based on their credit-bureau information as of March 1, 2008.

Consumer advocates have long decried the controversial industry practice commonly known as universal default, under which a customer’s rate could be automatically raised based on a single late payment to another creditor. And, although Chase ceased practicing universal default in 2005, Chase is now going further by completely eliminating rate increases based on credit-bureau information. This change is part of the continuing expansion of Chase's Clear & Simple initiative – an ongoing program to help Chase customers better understand and manage their account.

Effective March 1st, 2008, Chase may raise a customer’s interest rate if they violate the terms of the cardmember agreement by making a late payment, exceeding their credit limit or paying with insufficient funds. However, if a customer’s rate is increased for any of these reasons, Chase offers cardholders a way to lower their interest rate through its “rate reset” option: If a customer signs up for automatic payments and makes on-time payments for 12 consecutive months, Chase will reset the customer's rate to the lower, original non-promotional rate.

I commend Chase for being serious about making their cards more consumer friendly. Given the intense political and media spotlight on the card industry this year, Chase has really raised the bar with this announcement (Citibank is the only other issuer that I'm aware of that has made a similar announcement- they announced earlier this year that they would be eliminating “any time for any reason” increases to the rates and fees of their customers’ accounts). Let's hope that other issuers follow Chase's lead!

This article was originally published on CreditBloggers.com by Curtis Arnold, a nationally recognized consumer educator and advocate. Curtis has been educating consumers about credit cards since 1998. He is regularly interviewed and quoted by respected members of the national press regarding consumer credit issues. Curtis is currently working on publishing a book about credit card usage with Pearson/Prentice Hall- more details forthcoming!

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CardRatings.com is the most comprehensive source for comparing credit card offers. CardRatings.com is pleased to offer consumers free credit card ratings.

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Please Note! You are welcome to republish this article as long as you state that CardRatings.com is the source for the article. You must also include a link to our website if you republish the article online. Click here for more details about using our articles and thank you for your interest!

Credit Card Direct Mail Response Rates Take a Nose Dive

By Curtis Arnold, Founder of CardRatings.com


In 1998, credit card issuers could count on a response rate of 1.2% to the offers for new cards that they sent out. For every 1,000 pieces mailed, 12 people would sign up.

The projected response rate this year is only 0.28%, or four times less than what the credit card industry received less than a decade ago. Now, for every 1,000 pieces of mail, not quite three of us bite at the offers being sent to us.

Yet, from the industry’s point of view, direct mail is still very effective. Why? Because 42% of us got our newest card via a piece of mail. That’s the finding of a recent study of 400 cardholders, by the Auriemma Consulting Group, publisher of Cardbeat, a market research report for the credit card industry.

Still, as Cardbeat's Managing Editor, Megan Bramlette reported:

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“Our data shows that most consumers do not enjoy receiving card solicitations in the mail. In fact, about 14% say that they are overwhelmed by the number of mail solicitations that they receive.”

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On average, we actually open only 26% of the offers that arrive in our mailboxes – "with nearly half of respondents reporting that they do not open any of the credit card solicitations that they receive in the mail," according to the study’s findings.

It can’t make the industry happy that almost half of us toss these offers into the trash, unopened. (Remember to shred them, people!) But if issuers want to attract new customers, it still seems to be their best option. We’re more likely to respond to a piece of junk mail than we are to any other sort of offer, whether it’s a card we read about on the Internet (I still think our Card Reports section is best place to comparison shop for a card!), see advertised on television, or find out about at the bank.

IMPORTANT: If you would like to stop receiving unsolicited credit card offers in the mail, all you have to do is call 888-5-OPTOUT (888-567-8688) or click here.

According to Cardbeat’s study, we typically get 11 credit card offers a month. If my mailbox is any indication, that number seems low to me. On average, how many do you receive? Tell us and the whole world by posting in our popular credit forum!

This article was originally published on CreditBloggers.com by Curtis Arnold, a nationally recognized consumer educator and advocate. Curtis has been educating consumers about credit cards since 1998. He is regularly interviewed and quoted by respected members of the national press regarding consumer credit issues. Curtis is currently working on publishing a book about credit card usage with Pearson/Prentice Hall- more details forthcoming!

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CardRatings.com is the most comprehensive source for comparing credit card offers. CardRatings.com is pleased to offer consumers free credit card ratings.

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Please Note! You are welcome to republish this article as long as you state that CardRatings.com is the source for the article. You must also include a link to our website if you republish the article online. Click here for more details about using our articles and thank you for your interest!

Proposed Regulations for the Credit Card Industry: Do They Go Far Enough?

By Curtis Arnold, Founder of CardRatings.com


In late May, the Federal Reserve came out with its proposals for changing the rules that the credit card industry must follow. The goal, according to Federal Reserve Board Chairman Ben S. Bernanke:

“… is to make sure that consumers get key information about credit card terms in a clear and conspicuous format and at a time when it would be most useful to them … . Greater clarity in credit disclosures allows consumers to make more informed credit decisions and enhances competition among credit card issuers.”

The proposed changes primarily focus on how information is disclosed to us – how it should look, when we should receive it, and what we must be told.

Three Examples

1. The interest rates and fees would be clearer and easier to comprehend. Under the Fed’s proposal, whether it’s on an application, a credit card offer, or a statement, some of that fine print will actually have to be in a larger type-face, with key rates and terms in bold-face. Also, the details on penalty rates would be highlighted. In other words, it would be clearer that you’ll be hit with a penalty rate if you pay late.

2. Issuers would have to give us more time. The Fed wants lenders to give us 45 days notice – instead of the current 15 – before they make changes to the terms of card agreements. That way, we’d have more time to pursue other options. Fixed-rate credit cards would have to come with a guaranteed rate for a specific amount of time. Believe it or not, the way the regs now read, credit card issuers only have to give us 15 days notice before they hike the interest up on fixed-rate cards.

3. Credit card bills would have to be a lot clearer. We’d be able to better see how much we are being charged for what, be it in interest or in fees. Lenders will have to show how they allocate payments, what the effect of that will be, and even where you should go for consumer education – to the Fed’s own website! :-)

Perhaps the most interesting of the Fed’s proposed changes is that it wants lenders to have to show how much it will cost if you only send in the required monthly minimum amounts. They would also have to show how long it would take to get out from under paying only the minimums.

Do They Go Far Enough?

The consensus among consumer advocates seems to be that the proposals are okay … as far as they go. But they don't go far enough, especially when it comes to some of the most consumer-unfriendly of the credit card industry's practices. It would have been great, for example, if the Fed had proposed an end to the practice of universal default, where if you're late on one bill, lenders can raise your rates way up on all your other accounts.

Another key industry practice that would be left unchanged under these rules allows card issuers to charge the new sky-high rate on your already existing balances, even though they had already lent you that money at the old rate.

For more on what consumer advocates and even some card issuers have to say, I recommend Kathy M. Kristof’s excellent article in the Los Angeles Times, where she interviews many experts. Please check out the proposed regs as well, and then you can tell the Federal Reserve what you think of them. Please express your thoughts on our forum as well!

This article was originally published on CreditBloggers.com by Curtis Arnold, a nationally recognized consumer educator and advocate. Curtis has been educating consumers about credit cards since 1998. He is regularly interviewed and quoted by respected members of the national press regarding consumer credit issues. Curtis is currently working on publishing a book about credit card usage with Pearson/Prentice Hall- more details forthcoming!

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CardRatings.com is the most comprehensive source for comparing credit card offers. CardRatings.com is pleased to offer consumers free credit card ratings.

---

Please Note! You are welcome to republish this article as long as you state that CardRatings.com is the source for the article. You must also include a link to our website if you republish the article online. Click here for more details about using our articles and thank you for your interest!