President Obama’s weekly address to the nation focused on credit card refom, a topic he’s been attacking with a vengeance lately. After meeting with credit card executives on April 23rd, our website had a tremendous decline in consumer complaints. Apparently, credit card executives listened. Unfortunately, that wasn’t enough.
In today’s address, the President calls on Congress to, “to take final action to pass a credit card reform bill that protects American consumers so that I can sign it into law by Memorial Day. There is no time for delay. We need a durable and successful flow of credit in our economy, but we can’t tolerate profits that depend upon misleading working families. Those days are over.”
New credit card regulations are being met with the same enthusiasm Tony the Tiger bestows on a bowl of frosted flakes by many consumers. However, not everyone is saying, “they’re grrrreat!!!!.” As written here before, fast tracking new credit card regulation could trigger another plague of unintended consequences. In particular, this relates to 0% balance transfers and other low interest offers that many of us have become accustomed too.
During much of the past decade, credit card companies were able to utilize profits to offer consumers long term, 0% rates on purchases and balance transfers. Many consumers, mired in debt, utilized 0% balance transfers to help them reduce interest payments and get out of debt faster.
Unfortunately, 0% credit card offers have become more and more difficult to come by as of late, and if new regulations are passed this month, credit card companies may literally have no option but to end them altogether. As it is, Chase CEO Jamie Dimon has fingered credit card loans as a major issue for his company. The same can be said of Ken Lewis, CEO of Bank of America. Thus, at a time when credit card companies are losing money faster than they can create plastic cards, a slew of new regulations is on tap that will make it harder for them to stop losing money, let alone try to make a profit.
None of this bodes well for consumers. Granted, many credit card companies have done some deplorable things lately. That is unquestionable. However, now is not the time to restrict their lending ability by making their unprofitable businesses even more unprofitable.
For our country’s sake, lets hope the terms of the new regulations aren’t so onerous that the banks are left with no option but to curtail lending. In a worst case scenario, consumers who need credit will no longer be able to obtain it, and consumers who need to refinance via balance transfers will be left paying 15% rates.
Somewhere out there is a middle ground. Let’s all hope our government and credit card companies settle their disagreement there.
