The new consumer credit controls are still a puzzle to many banks, stores and finance companies. Their representatives continue to talk with officials of the Federal Reserve Board in Washington who administer the controls, to find out exactly what can and cannot be done.
Over this week however, most of the major institutions should be announcing their plans.
We've already had a look at some of the trends: Sears, Roebuck and J.C. Penny will raise the minimum payment on certain monthly charge accounts; Chase Manhattan Bank will give no more unsecured loans, except in certain situations; Wells Fargo Bank has frozen its bank card limits; First National Bank of Boston quit accepting new bank card applications; and Citibank canceled the Visa cards of the group of people entitled to charge only a small amount (but invited them to reapply for credit, to see if they meet the bank's current -- and tighter -- standards of creditworthiness).
Here's the sort of thing you can expect over the next few months::
Loans will be even harder to get. The government put controls only on certain unsecured loans -- in general, loans on your personal signature, without collateral. But lenders are also tightening up on secured loans for cars, homes and major purchases at retail stores. The effective cost of money is so high today -- 16 percent for banks and more than 20 percent for many finance companies -- that in some cases it doesn't pay to grant credit.
Loans have not, however, dried up entirely. Lending institutions are not shutting their doors and going out of business. But to get a loan at a bank or savings and loan association, you'll probably have to be a regular customer. Also, you'll need a higher income, a history of prompt payment of bills and relatively little debt.
People who never had credit before will find it harder than usual to get their first charge cards. Because of the heavy financial penalty on increased credit, banks and stores will be reluctant to take on new customers as long as controls last.
Consumer interest rates will rise. Major lenders must deposit the equivalent of 15 percent of most types of unsecured consumer credit, over a base amount, in a non-interest-bearing account at the Federal Reserve. This raises their cost of lending, and they're going to pass that cost along to you.
What, exactly, they can do will depend in part on your state's usury laws. You may be hit with higher interest rates, higher fees, larger monthly payments, or a change in the way the carrying charges the calculated.
Gary Bocso of the American Bankers Association told my associate, Dedra Hauser, that in 1949, well over half the states raised their legal interest-rate ceilings on various types of loans. So far in 1980, Kansas has raised the rate on mortgages, South Dakota repealed all usury laws and West Virginia allowed state institutions to charge the higher rates now available to federally chartered lenders. This week, the Senate will vote on a bill to eliminate all state ceilings on mortgage rates unless the state reimposes them within three years.
These higher interest rates will, initially, add to the inflation rate -- an ironic touch, in view of the fact that credit controls were announced as an anti-inflation measure in order to slow consumer borrowing and spending. In truth, consumer borrowing and spending had already slowed sharply even before controls were announced.
You may lose one or more of your charge cards. Many banks that formerly carried both Visa and Master Charge are canceling one. Banks and other lenders are also quicker to cancel slow payers or turn their bills over to debt collection.