By Jose Garcia
Consumers received an early holiday present this year from the Federal Reserve Board in the form of new regulations for the credit card industry. In an effort to bring a small sense of fairness back to an industry that has been allowed to gouge consumers with little oversight, the new rules, set to take effect in 2010, will, among other changes:
* Forbid banks from imposing interest charges using the "two-cycle" billing method;
* Require that consumers receive a reasonable amount of time to make their credit card payments;
* Address Subprime credit cards by limiting the fees that reduce the amount of available credit.
These new regulations point towards efforts to increase consumer protections. However, credit card holders will have to wait almost two years before these changes go into effect.
So where does that leave consumers in 2009 who are weathering both a recession and a tightened credit market? Exactly where they have been for the past decade: alone in a deregulated credit market where the industry is allowed to legally prey on consumers. Blinded by profit, these companies seek to maintain revenues as families struggle. Unemployment is on the rise; those with jobs are facing declining wages and safety nets; and health insurance is covering less and less.
Already, Edward Yingling, the President of the American Bankers Association, has stated that "while the new rules are designed to increase protections for consumers, the Fed itself has recognized that they may result in increased costs for most card users and reduced credit availability, particularly for consumers with lower credit scores or limited credit history." Hidden in the ABA's reaction to the new regulations is the insinuation that it is impossible to provide safe and sound products to riskier consumers without predatory credit card features. Hiding behind the supposed neutrality of credit scores, these companies have been able to justify questionable practices by claiming there is no other way to assess creditworthiness.
So until these regulations go into effect, it will be business as usual. The Federal Reserve Board and other regulatory agencies are beginning to play catch up after decades of deregulation. While consumers will be left to suffer, consumer protections must stay abreast of new innovations and products from the companies as they continue to seek profit through loopholes and circumvent new regulations. In the future, it may be wise to forego innovation until the new regulatory apparatus ensures that families and the economy are not only are protected but stand to benefit from such innovations.
To read more from Demos, click here.
To see our debate about credit card rights, click here.