Sunday, May 17, 2009
Congress is on the verge of passing legislation that would transform the way credit card companies and consumers interact.
It's been a long time coming, consumer advocates say. But relief won't come anytime soon, even if the legislation makes it to President Obama's desk by Memorial Day, as he has requested.
As proposed, the earliest that either the House or Senate version would go into effect is nine months after being signed into law. The Federal Reserve, meanwhile, has approved new regulations that do not go into effect until July 2010.
"Both the politicians and the regulators are riding in like the cavalry, and the settlers are already dead," said David Robertson, publisher of the Nilson Report, a newsletter that monitors the credit card industry.
Credit card debt has jumped by 25 percent in the past 10 years, reaching $963 billion in January 2009, according to the Federal Reserve. Delinquency rates have increased by more than a third since the end of 2006, with 5.6 percent of accounts at least 30 days late in the fourth quarter of 2008, according to statistics cited by the White House.
Exacerbating the situation is that card companies, hurting from lost revenue, have in recent months taken punitive measures such as raising interest rates and cutting credit lines for both delinquent customers and those who have paid on time.
In a survey conducted by consumer education site Credit.com in February, 33.7 percent of 1,004 borrowers said their credit card company had increased their rate or minimum payment due, changed their due dates, lowered their credit limit, scaled back their rewards program or closed their account. Industry experts said they expect such actions to continue.
"With implementation nine to 12 months away, I think the reign of terror we've seen going on relative to consumers will continue," said Adam Levin, former New Jersey consumer affairs director and founder of Credit.com.
Other analysts believe that card issuers will refrain from taking negative action so it doesn't appear that they are gouging customers.
"The change in the law itself will not directly help [consumers] right now, but I do think the environment has changed so much that there will be companies that will do the right thing," said Nick Bourke, manager of the Safe Credit Cards Project for the Pew Charitable Trusts.
White House officials, who have stepped up efforts to reform the industry, are optimistic that the industry will change rapidly.
"I think that consumers will fairly quickly see competition between credit card companies that we haven't seen before," said Jared Bernstein, Vice President Biden's chief economist. "Instead of competition based on opaque and sometimes deceptive practices, it will be competition based on who's more transparent, who's offering a clear set of terms that consumers can understand."