There have been disputations about the necessity of having the credit card market reinforced by the government to restrict some deceptive practices by issuers on consumers; like the sudden changes to policies and terms of use. The new reforms have been signed recently and they are about to take actions in the coming months, hoping to finally limit these kinds of practices.
One important role of the new modifications is to ensure disclosure of terms and bills, and give consumers notices and enough time to pay due bills before being charged. Other roles include restrictions and eliminations of some practices, probably like the one known as risk-pricing or universal default. Such practices have allowed issuers to raise rates on consumers’ accounts because of late payments on different (maybe unrelated) accounts that the issuer has nothing to do with. In addition, such practices helped issuers determine the risky consumers so that they can take precautions on them like increasing rates or cancelling the application for a credit card.
Advocates of the new rules state that the new obligations should now help for much clearer disclosure of policies by issuers, and limiting interest rate hikes. They will bring much more fairness to the market. Of course, such things are helpful to fill the gaps in the market of credit cards; those gaps that allowed many of credit card companies to misuse their flexibility on changing terms to increase their gains by charging consumers.
Opponents of the new rules, mainly issuers and some consumers, have other ideas on this. Most issuers argue that the new act will increase the risks and losses accompanied of risky consumers because the new act eliminates the risk-pricing method. They state that with the current economic crisis and having many banks already collapsed, more loses on banks would be the last thing the government could add to worsen the economy. Issuers’ argument has led some consumers to oppose the new reforms stating that these legislative actions are not enough; They probably would result in more deceptive practices because credit cards will figure out a way to cover these loses, simply by adding new charges on consumers. They point out that the Fed regulation of the market is much better than imposing reforms since the Fed has more knowledge about “bank operations” than Congress does.
The new signed reforms might be good for consumers in a way but bad in another. According to Silver-Greenberg, the new rules will enforce issuers to send cardholders notices about any rate changes or fees in 45 days before they are applied (BusinessWeek). Moreover, they must notify consumers about bills 21 days before the due, which makes late payments much more avoidable. This is good for us! However, a portion of values and gains from being flexible will soon be taken out from these companies due to these bindings. These gains reached about $19 billion last year according to Hammer, industry analyst (CreditCards.com). Therefore, issuers won’t stand silent and will fight back by figuring out a way to maintain these gains. Bad news!
All consumers may already experience the reaction of credit card companies to the new reforms. We have seen rates going up, rewards cut down, new fees and charges being applied, and even worse credit limits going down. Issuers are chasing after new gains to retain previous balance before the February deadline. Recently, there have been discussions to early move the deadline to December 1 this year in order to save consumers from issuers’ new abusive obligations.
Credit cards are very beneficial and helpful through the economic struggles nowadays. It might be the case that some of these practices will be eliminated and others are restricted for good. Nevertheless, these reforms drove us to new obligations imposed by card companies, like new annual fees, and disappearing rewards. The situation might get worse to having increasingly debts and fees especially with the current conditions of economy. And if more of these practices are imposed and turn out to be abusive, then another help from the government will probably take long time of waiting to apply. If the new reforms are intended to help the consumers from deceptive acts, then unfortunately it doesn’t seem that they do enough to achieve that.
So what do you think about the new reforms? Are we done yet? Or more abusive acts are to follow? Is there a way to go over this or maybe to fix this?
callmecrazy33 said
I think you’re right when you present the argument from critics that it makes for riskier practices by removing the risk-pricing model. That’s actually what caused the financial crisis in the first place: government policies that practically forced banks to give loans to people who were such bad risks that they were almost guaranteed never to pay them back. I think the reason that Congress signed the credit card legislation was to protect against the possibility of rampant inflation due to massive government spending. After all, if people can still use credit cards to make purchases when they don’t have the cash, the economy will still be able to function for a little while longer. I also think that as the credit card industry (Visa in particular) is such a vital part of not only the American but the global economy, the government would do well to withhold its hand and not intervene any more than it already has, maybe even go so far as to reverse the already-passed legislation. After all, the last thing we as consumers want is to be charged more for things we have no control over.
Moving Up the Deadline of CARD Act « Alismail's Blog said
[...] Up the Deadline of CARD Act By Ahmed Al Ismail As discussed previously, the new credit card reforms are intended to help consumers from deceptive acts of credit card [...]