Credit Card Reforms Arrive
By Tom Ryan
President Barack Obama
Friday signed a bill overhauling credit card rules, banning issuers from
suddenly raising interest rates and charging hidden fees. The new laws
mostly protect riskier borrowers –
those paying off massive monthly balances at interest rates up to 30 percent.
But banks warned that credit access to all consumers will be limited.
Among other things, the
act safeguards against:
- Interest rate increases: Generally bars card
issuers from raising rates, unless consumers are more than 60 days in
- Penalty fees: Bars imposition of fees for exceeding
a card’s limit, under most conditions;
- Marketing to college
students: Bars card issuers from extending
credit cards to people under 21 years, without verifying their ability
to pay or getting their parents’ permission.
The bill also requires
a card’s terms and conditions be written in plain English as well as posted
on the card issuer’s website. The new law takes effect in February
The White House said
Americans pay some $15 billion annually in penalty fees, in part because
of credit card contracts that are unfair and deceptively complicated. Interest
rates for millions of cardholders have jumped in the past six months, making
paying off balances more difficult.
One win for banks was
that the new rules do not cap interest rates or fees. To make up for the
lost income, however, some analysts predicted that issuers may charge more
annual fees, reduce credit lines and slim down rewards programs. Younger
consumers with short credit histories or small-business owners could face
limited access to credit.
the end of the day, you are still talking about a loan, and lending is
inherently a risky business,” Peter Garuccio, spokesman for the American
Bankers Association, told the Associated Press.
“What the new laws do is limit the ability of card issuers to price
advocates and other observers said credit card companies will continue
to profit under the new rules, from fees charged to both consumers and
merchants. They also believe credit and incentives will be there for good
will be competition among banks for good customers,” Pamela Banks,
senior counsel for the Consumers Union, told the Associated Press.
If one bank charges an annual fee, “there will probably be another
bank out there” that won’t, she said. Otherwise, people will start
using debit cards or paying cash.
The legislation “is
not going to be a hanging for banks, but I think Congress has collared
them and are bringing them in,”
Robert McKinley, founder of CardTrak.com, which consults with banks, told USA
Today. “It’s been the Wild West for the card industry for a long
How will the credit card reform bill impact consumers? What should retailers
be doing in response?
- Obama signs into law credit card
reform – USA Today
- Credit changes on the horizon – The
- What’s Next for the Credit-Card
Sector? – The Wall Street Journal