New legislation could have unintended consequences…
The American financial landscape may never look the same following recently enacted credit card legislation. Despite the cheers of victory touted by consumer advocates, experts warn that there may be unintended consequences as companies search for ways to make up for lost revenue. Capital One CFO Gary Perlin acknowledged that there will be industry-wide pricing and fee structure reinvention since the ability to adjust debt and how much they can charge for various fees has been limited.
The Changes Have Already Begun
To make up for losses caused by the legislation, consumers could see more cards with annual fees and the loss of a grace period, affecting consumers who pay their balance off each month. And since the laws enactment, one third of consumers have had one or a combination of changes made to their accounts. A recent poll by GfK, one of the largest market research companies in the world, reported 19% of consumers saw an increase in their interest rates. Nearly 18% saw their credit limit lowered; 14% an increase in fees; 12% an increase in the minimum payment and 9% saw their rewards program reduced.
Countdown to New Legislation
Mark your calendar for February 22, 2010, the day key provisions of new credit card legislation goes into effect. Financial experts expect it to cost the industry billions of dollars in lost fees and interest income. Four major changes can be expect in the months leading up to the implementation of the new legislation.
- Average annual interest rates will rise. If cardholders haven’t already had their rate increased, most consumers will be expected to see a jump of 8 to 15% depending on their credit score.
- Card issuers will reinstate annual fees, particularly on reward cards, in an attempt to recoup the loses that will result with the elimination of current industry revenue sources. Currently only about 20% of U.S. credit cards carry an annual fee. Expect to pay $50 to $100 annually.
- Grace periods are likely to shrink. Consumers who regularly pay off their balance may be offered an annual fee or lose your grace period. Some banks are considering charging interest from the date of a purchase instead of allowing a grace period, now typically 20 to 25 days.
- Fees for balance transfers, cash advances or late payments will rise.
Even with unintended negative consequences, the new laws are, for the most part, beneficial for consumers and will help rebuild confidence and trust in the industry.
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