Five Consequences of the New Federal Credit Card Regulations

[Jan 1, 2009.]

 

The Federal Government, reeling from the impact of the subprime mortgage disaster, recently added increased levels of regulation with respect to credit cards. Read an editorial about the topic here. Although the new laws do not take effect for 18 months, consumers should feel the effects immediately.

Here are five specific ways this legislation could change the credit card and/or personal loan market:

1. Less Credit Cards Issued

At the risk of mastering the obvious, credit card companies are extremely numbers-oriented. In this case, insofar as the new regulations could decrease profit, some credit card companies will cut back on issuing credit cards to borrowers with questionable credit. Previously, the credit card companies were able to pull profits from most any borrower by charging high fees, retroactively applying new high interest rates, and various other not necessarily friendly business practices. With the government cracking down on all that, the credit card companies may close their wallet to subpar credit types.

2. Increased Credit Card Fees

Once credit cards are issued, consumers may see an increase in fees related to their accounts. Again, it's a numbers thing: if credit card companies can't make a profit one way, they'll make a profit another way. Responsible credit card users, for example, have gotten used to being able to use their plastic at will without any real fees, so long as the balance is paid by the end of the month. If the new laws are shown to decrease profitability at the credit card companies, even people with perfect credit scores may have to accept some minimal level of expense associated with their credit card accounts.

3. New Sources of Funding

In a capitalist system, people and organizations step in to fill voids. If consumers want credit, which they do, eventually the market produces an entity willing to lend. With the credit card companies under  pressure, other sources of funding may arise. Personal loans from family and friends may become more prevalent. Prosper.com, a "social lending" website, could catch on. Fast cash personal loan providers could expand relationships with borrowers to offer more long-term credit. Anything could happen, and something surely will. Lending is a profitable business. Borrowers will not go begging forever.

4. Fewer Hidden Changes

Those who are able to get a credit card may benefit from the new law's prohibition against changing the terms after the agreement has been entered into, and then notifying the credit card holder of such changes in the form of a tiny, basically unreadable pamphlet sent by mail. Anyone who has ever held a credit card is familiar with this literature, and most likely hates it. Now, so does the U.S. government. This is one area where Consumer Affairs got its wish.

5. Wiser Borrowers--Hopefully

Credit card companies will adjust to the new regulations, and those that adjust successfully will remain profitable and grow. It's a similar story with borrowers. The new laws are just one more notification to consumers who need personal loans that they have to be wise about what products they choose. Luckily, there is an increasing array of personal loan credit options available, but researching what's right for what situation is more important than ever. Especially with bad credit personal loans, people have to really do their homework.

 

About Author:

Andrew Freiburghouse is a writer and businessman. He has worked as a magazine reporter, tax preparer, screenwriter, copywriter, and loan officer. He graduated from Santa Clara University in 1999 with a B.A. in English. Andrew was born and raised in the City of Los Angeles.