Tough Times for Credit Card Issuers as President Obama Signs Bill

Summary: New legislation and how it will affect credit card holders and the issuers of credit cards.

President Obama signs bill

As a result of years of pressure from many quarters and headed mainly by the consumer groups as well as Democrats, President Obama lent his signature to a bill that effectively outlaws raising of rates of interest and fees with regard to credit cards. This legislation concerning the credit card interest rates and fees have been a long time in the works. Initially, a bill was passed by the House in 2008 and once again in the early part of this year. There are many practices that issuers of credit cards target consumers with which are abusive to say the least and the bill that hopes to outlaw these practices were praised by President Obama
at a bill-signing ceremony at the White House recently. He hoped that the bill will help to bring about a substantial change.

Objections from the banking industry

The advocates of the banking industry are objecting to these changes vehemently saying that it would only result in Americans having their credit tightened. However, the bill was passed with overwhelming margins in the House and Senate earlier in the week. Senators from both parties supported this legislation. The government denied the allegation that this bill was designed to protect the consumers who have been fiscally reckless and negligent with their credit cards. 

New law to be effective from February 2010

The new law will come into existence as it take effect somewhere in February 2010. But, the consumers will have to deal with hikes in rates till that time and the legislation will have no retrospective effect. So, during these next months consumers using credit cards are bound to be careful. According to the new legislation consumers under the age of 21 will find it more difficult to obtain a credit card. Any rate hikes are also banned under this with the exception of consumers who are late by more than 60 days. They can hope to get their rates back to the original rate if they pay the minimum amount over the next 6 months.

Possible aggravation of the credit card crisis 

This bill will cause the banking industry to suffer great losses and is being decried by them. They point out that this bill will only aggravate the existing credit crunch and will most probably end up in the banks having to ditch a number of risky credit cards. Meanwhile, the American Banker’s Association has threatened to reintroduce higher interest rates for all credit card holders along with the charging of annual fees. This course of action will effectively penalize those consumers who have been paying their bills on time and building good credit.

Increasing interest rates and fees

Over the last few months of this year the credit card companies have been steadily increasing interest rates and fees by a significant percentage according to a report by the Federal Reserve board. 80% of all American families have at least one credit card. Out of this number only about 44% of these families who use credit cards carry a balance. This legislation should not be construed as a means of escaping the payments that are due on a credit card by fiscally irresponsible consumers. It would also be ideal if a way could be found to accommodate those who have made regular payments and generally looked after their credit rating.