Deregulation is often blamed as a reason for the financial crisis of 2008. However, at the risk of sounding like CNBC’s Larry Kudlow, increased regulation of credit card practices may be playing a very large role in the interest rate increase notices many Americans are receiving in the mail. The rationale for this position is quite simple. New credit card regulations passed in late 2008, designed to help consumers, will essentially tie the hands of credit card companies with regard to the way they price risk, particularly through rate increases.
When the new credit card rules take effect in 2010, it will be significantly more difficult for credit card issuers to increase consumer interest rates. Not surprisingly, banks started raising interest rates and slashing credit lines as soon as the Credit Card Holder’s Bill of Rights passed. Essentially, these companies have been making a mad dash to reprice consumer debt while they still can. The result: consumers with good credit and no history of missed payments are seeing 50-100% increases in their interest rates.
On the surface, this can be written off as a natural reaction to the credit crunch. However, the credit crunch is only a piece in a bigger puzzle. The interest rate increases being slapped on consumers with Bank of America, Chase, Capital One, HSBC, and other accounts should be seen as a pre-emptive measure to prepare their credit card portfolio’s for the new regulations.
If I’ve yet to convince you, here are the first two bullet points of the Credit Cardholders’ Bill of Rights:
- (The bill) Protects cardholders against arbitrary interest rate increases
- (The bill) Prevents cardholders who pay on time from being unfairly penalized
Both of these ideas sound great for consumers. However, if you take a moment to read some of the credit card complaints posted by consumers on this website, you’ll notice that these people have been victimized with arbitrary rate increases and unfair penalties. Sure, credit card companies have been doing this to some degree for years. However, the people being hurt by these moves are no longer deadbeats. They are honest, bill-paying consumers.
Clearly, our Government had the best intentions when they passed the Credit Cardholders’ Bill of Rights. Unfortunately, our Government lacked the foresight to anticipate just how far our banks and credit card issuers would go to protect themselves against these new limitations.
Ultimately, there is plenty of blame to be passed around these days. And much of it should fall on the shoulders of the credit card companies that are hurting consumers during these most difficult of times. Nevertheless, one has to wonder if consumers would be getting punished as badly as they are today if the banks weren’t angling to protect themselves when the new regulations take effect.
So go ahead, call me a Larry Kudlow, right wing de-regulation advocate. Just don’t forget to acknowledge the possibility that I am also correct.
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