What’s Up – And Down – With Credit Cards
Did anybody notice that the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (the CARD Act) took effect last month? Passed early in the Obama presidency, it gave credit card companies nine months to “adjust” before the legislation became law. And, boy did they adjust.
Earlier this year the American Institute for Economic Research reviewed Federal Reserve statistics and determined that 73% of American households have one or more general use credit cards and that 58% of households carry a monthly balance. Here is a brief summary of the Institute’s study.
So, what’s up, and down, with credit cards in the nine months between passage and implementation of the CARD Act?
UP: Interest rates. Credit card companies have taken advantage of the lag time to raise initial interest rates, ongoing interest rates and penalty interest rates on delinquent accounts. The CARD Act places no limit on maximum interest rates.
DOWN: Credit limits both on existing cards and new issues have been decreased. Not limited to the adjustment time in the Act, 58 million cardholders have had their credit card limits cut in the past 18 months.
DOWN: Future credit availability. Oppenheimer & Co. predicts that over the next 18 months credit card companies will remove an additional $2.1 trillion, 45%, of consumer credit card availability.
UP: Fees. Cards without annual fees will have fees added, and those cards with annual fees can be expected to increase. And new fees are on the way. Monthly processing fees for paper statements are in the works. Balance transfer fees are being increased. Reinstatement fees, where the company won’t allow use of bonus points until the account is “reinstated” for a fee after a late payment, are taking shape. Then there’s the “inactivity fee” where card companies charge a fee for not using their card. Citibank has already sent notice to some cardholders that minimum card activity of $200 a month is necessary to avoid an inactivity fee.
DOWN: Rewards. Credit card companies will reduce expenses by devaluing rewards programs associated with their cards. American Express has already reduced the cash back rewards on some cards from 1.5% to 1.25% (a 16.7% reduction in cash back rewards). But, the good news that really isn’t good news is that some credit card companies are considering a new rewards program…for carrying a month over month balance, thereby discouraging card users from paying off balances.
If you’d like a quick refresher on what the CARD Act does look at the bottom of this article in the Palm Beach Post for a quick summation.