Financial and Economic Issues

Moving Up the Deadline of CARD Act

Ahmed Al Ismail — Fri, 13 Nov 2009 13:21:26 +0000

As discussed previously, the new credit card reforms are intended to help consumers from deceptive acts of credit card companies. And to make it a fair market, the credit card companies have been given a period of time until Feb 2010 (the deadline) to determine and clarify their final policies for customers before the act. This will give consumers much clearer idea about terms and rates, and after the deadline there will be no increase in rates on existing balances. However, this opened the door for more deceptive practices by these companies, taking the advantage of increasing rates and fees before the deadline.

Even though the new act will restrict the increase in rates, it doesn’t have restrictions on imposing new fees; it only requires a disclosure of these fees to consumers 45 days in advance before they are applied. Therefore, as we see these companies increasing rates and fees, we’ve thought that the new act might not be enough for protecting consumers of abusive acts. Some people have suggested a regulation of the market by the Fed, but it might not be a good idea as discussed in “Credit Card Market: Reforms vs. Regulation.”

The increasing of recent deceptive acts by companies led the members of House to seriously think about moving the deadline of the act to December 1, 2009. Rep. Carolyn Maloney has stated that the move up idea has come up after seeing how the rates on credit cards have been gone up enormously in this period; companies hold responsible about this, they brought this on themselves. The rates have been raised to more than 90 percent, up from 20 percent, just in half year of 2009. Maloney says that the December 1 new deadline is intended for consumers to be more relieved when using credit card. It will allow them to use this credit for charismas and new-year purchases. Further explanation and more speech about the new deadline by Maloney are in the following video.

It makes more sense for the deadline to be moved up, so people can benefit from the credit card for the coming break purchases, without the fear of raising rates on their cards. The credit card companies have already increased their fees and rates in the last period, and it’s more likely that they are going to take advantage of the break purchases, imposing more fees and charges and hiking rates on using the card. However, if the deadline is moved up before the break, the act will probably restrict issuers’ deceptive activities as intended, and give the consumers a relief for using the card.

It seems that the House is imposing a positive step toward consumer protection by moving up the deadline of the act. The new reforms should work to protect consumers by limiting increase rates, restricting credit card issuing for minors, and eliminating some deceptive acts like the universal default and double-cycle billing. It might be a good idea to first see the new reforms in action before we begin to think about other options to resolve the credit card issues. Hopefully, there will no more crazy charges that we can’t afford.

Credit Card Market: Reforms vs. Regulation

Ahmed Al Ismail — Wed, 11 Nov 2009 04:43:19 +0000

As discussed before in “New Credit Card Reforms, Is the Worst Over?” it seems that the new reforms are not yet beneficial in terms of helping the consumers from deceptive practices by credit card companies. The new reforms instead opened the door for an unfair market where more fees and charges are being applied on us, consumers, which most of us can’t afford.

This led some consumers and other experts to believe that the Federal Reserve regulation of the credit market is much better and preferable than the Congress new reforms. In other words, they want the Fed to control the market as they do in the banking system and its operations, not just passing rules or “legislative actions”. They believe that giving the credit card companies the freedom in running the business would not end the abusive practices; this is because issuers will figure out a way to obtain profits as clearly shown nowadays having increasingly many fees being applied.

It might be good to have the credit card market controlled by the government in the view of consumers, but it probably will hurt the issuers, as well as consumers in the long run. Why? The history shows how the Fed control-

The Fed is desperately trying to stop the growing financial crisis.

ling the banking system has been good for a while. The Fed increases and lowers interest rates on bank loans so people can benefit from loans to spend and purchase stuff. The primary reason for this is to help the economy through having the spending of money flowing on the market when needed, by lowering the interest rates. However, after the over borrowing and overspending, and the fall down of houses’ prices, all these led to what is now considered a financial crisis or the economic crisis. Many banks have collapsed, other financial institutions are suffering, and the government has spent millions on bailing out these banks so the economy doesn’t go to worse. People started to lose jobs, they have started to worry, and the situation has not yet been resolved.

Therefore, it might not be a good idea to control the market of credit card, but it still important to eliminate the deceptive practices. The control might lead to the same situation as now. Many people might use the credit cards for purchases that they can’t afford, and that might lead these companies to collapse as well as consumers to a huge economic downturn. Since the risk-pricing method will be eliminated, then companies can’t determine which consumers are more risky of not paying back; therefore, they start to increase fees and charges on all consumers, which is unfair for some other consumers who pay on time. Even though it’s not good to have increasingly fees and charges on all of us, it sounds reasonable why issuers do increase fees.

So do you think Fed regulation will be good and why? Is there a way to eliminate the abusive practices without too much regulator actions? Can you suggest reforms that are fair for consumers and issuers? Or we just have to live with this?!

New Credit Card Reforms, Is the Worst Over?

Ahmed Al Ismail — Fri, 30 Oct 2009 03:10:14 +0000

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?