Card Issuers Find Loopholes Before New Law Takes Effect
Sunday, November 1st, 2009For all those individuals who have used their credit wisely and kept up with making their payments on time, you 
would think that credit card issuers would be more apt to reward their customers with lower rates, better terms and more attractive features. Instead, it appears that card issuers are finding loopholes before the new law takes effect to fill the gap.
Credit card issuers have leveraged the use of frequent flyer miles programs, cash-back rewards and other perks to entice customers into using their card products. The new legislation will limit the ability of card issuers to make those easy, high interest rate card offers to riskier or less than qualified borrowers. Making up the short-fall, it appears, will come from a notable source …. their most credit-worthy and reliable customers.
How Will Card Issuers Make It Up?
The “loopholes” that the card issuers are using include the following:
• Cutting back or curtailing the amount of “cash-back” offers they make available to consumers.
• Reviving much higher annual fees
• Charging interest immediately on purchases that they use to offer a 25 or 30 day grace periods.
With the threat of the new legislation dramatically affecting their bottom-line profits (which have been taking a beating) during the economic downturn, card issuers will be looking to their only source of hope to make up the lost ground in their good paying customers to make up for billions of dollars in lost revenue.
According to Edward L. Young, CEO of the American Bankers Association, he said that “It will be different business”, and that “those that manage their credit well will in some degree subsidize those that have credit problems”.
WOW! What a chilling admission of where things are headed with the industry.
How Can They Get Away With It?
Well it may come as a surprise to know that the new legislation does not specifically forbid credit card companies from hiking their rates. This is another loophole for them.
Card industry expert, Robert Hammer commenting about the reality that card issuers face. “They aren’t charities. They have shareholders to report to,” and banks and credit card companies will do “whatever is left in the model to work from, they will start to maneuver.” Sound familiar? That’s the attitude that culminated in the sub-prime mess.
The recent economic upheaval has decimated the old formula of lending and extending credit to more riskier borrowers which brought billions of dollars of revenue and profits to these companies in the past. They are now faced with an uncertain future and will need to adapt to the new environment in order to find creative ways to make up for lost profits.
According to recent news reports some of the big issuers such as Bank of America, Citigroup, American Express and others, are already raising rates across the board. Incidentally, an interest rate cap was not part of the new legislation.
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November 6th, 2009 at 1:41 am
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November 17th, 2009 at 11:40 am
If Congress was not so TOTALLY in the hands of the Credit Card Companies, they would have capped the credit card interest rate to a reasonable amount. They did not. Not only did they NOT cap credit card rates…but let the CC companies have months and months to gauge their customers…not only by raising interest rates.. but including existing balances in the new interest rates.
What an absolute bunch of crap.
May 14, 2009
Senate Rejects a 15% Ceiling on Credit Card Interest Rates
By CARL HULSE
Despite complaints that banks and credit card companies are gouging customers by charging outrageous interest rates, the Senate on Wednesday turned back an effort to cap interest rates at 15 percent.
The proposal by Senator Bernard Sanders, the Vermont independent, drew only 33 votes and needed 60. A bipartisan group of 60 senators opposed it, though the Senate pushed ahead with other restrictions on credit cards. Some Democrats and consumer groups have said that an interest cap is needed to put real teeth into an otherwise solid bill.
The bill still contains provisions that would prohibit companies from raising interest rates on existing balances unless a card holder was 60 days behind, and then would require the rate to be restored to its previous level if payments were on time for six months. Consumers would have to be notified of rate increases 45 days in advance. Companies would not be allowed to charge late fees if they were late in processing a payment.
Other backers of the measure calculated that an interest rate ceiling would doom the popular legislation. The banking industry, which had some heavyweight representatives monitoring the vote, warned that an interest rate limit could cause a sour reaction in the financial markets. But Mr. Sanders said the card companies and banks were engaged in conduct that could get others hauled into court. He said one-third of all credit card holders are paying interest above 20 percent and as high as 41 percent.
“When banks are charging 30 percent interest rates, they are not making credit available,” said Mr. Sanders. “They are engaged in loan sharking.”