consumer rights to the forefront of the US economic agenda has led
to a raft of measures, both political and legislative, being put
into place in recent weeks, aimed at putting a stop to “unfair”
card billing and fee practices.
US credit card issuers and payment
networks were not expecting a sympathetic hearing from President
Barack Obama when he met representatives from 13 card-related
organisations on 23 April. He warned them they will face new
regulations and increased scrutiny as he attempts to portray
himself as a consumer champion.
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Representatives from Bank of America, American
Express, JPMorgan Chase, Capital One, Citigroup, Barclays, Visa,
MasterCard, Wells Fargo, US Bancorp, HSBC, USAA Savings Bank and
the American Bankers Association (ABA) duly filed into the White
House to hear President Obama tell them that while he recognised
that credit cards were a crucial source of finance for families and
small businesses, the terms and conditions attached to them were
too confusing and had led to consumers paying out more in fees and
interest than they had expected.
“The days of any time, any reason rate hikes
and late fee traps have to end. No more fine print, no more
confusing terms and conditions,” Obama told reporters after the
meeting.
“We want to preserve the credit card market,
but we also want to do so in a way that eliminates some of the
abuses and some of the problems that a lot of people are familiar
with.”
ABA president and CEO Edward Yingling said
after the meeting that measures to improve the situation had
already been established by regulators, such as Federal Reserve
regulations outlined in December 2008 that will take effect from
July 2010.
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By GlobalData“These sweeping new rules directly address
many of the issues raised by the officials and by members of
Congress. The card issuers are currently hard at work implementing
these new rules, although the Federal Reserve itself has indicated
these rules are likely to shrink credit availability and result in
increased rates for some consumers.
“The goal of any additional efforts should be
to achieve the right balance between enhancing consumer protections
and ensuring that credit remains available to consumers and small
businesses at a reasonable cost.”
However, various consumer-orientated credit
card reform bills – such as the Credit Cardholders’ Bill of Rights
and the Credit Card Accountability Responsibility and Disclosure
Act – are currently making their way through the US Congress and
Senate respectively.
According to Moshe Orenbuch, an analyst at
Credit Suisse First Boston, both the Congress and the Senate bills
go further in regulating the credit card industry than the Federal
Reserve bills.
“The competitive response to the proposed
changes will dictate the effects of the changes on credit card
industry profitability,” he told CI.
“Given increased limitations on pricing
flexibility, we expect issuers to use higher ‘go-to’ rates after
promotional periods expire in order to protect profitability,”
Orenbuch added.
|
Regulation |
||
|
Credit card reforms* |
||
|
Federal Reserve |
Senate bill |
|
|
Billing statement mail-out |
21 days before due date |
21 days before due date |
|
Allocation of payments |
Three allocation options |
Balances with highest interest rate first |
|
Universal default |
No provision |
Prohibited |
|
Interest rate disclosure |
No provision |
45 days notice |
|
Fee restrictions |
No provision |
No charges on credit card debt or interest on |
|
Overlimit fees |
No fee imposed when card limit is exceeded |
Fixed credit limit option available to |
|
Other |
Prohibits issuing cards to people under 21 |
|
|
* not all measures listed Source: |
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