With provisions of the new credit card laws due to go into effect on February 22, 2010, credit card companies are adjusting their offers accordingly. Long term interest rates have already increased across the board and 0% credit card rates are likely to increase, and thus disappear.
With congress passing and President Obama signing the CARD act of 2009, provisions of which have been enacted already with the remainder to be implemented in 2010, credit card issuers are preparing for the most sweeping changes to hit the industry in decades. This, along with the uncertainty around consumers’ ability to pay their debts, has credit card companies closely examining their rates and incentives.
During the previous decade, 0% credit card rates were a way to entice customers to open a new credit card and move any higher interest balances to this card. The card companies knew that most consumers would not pay off their balance by the time the initial 0% rate expired, usually not more than 12 months. When the 0% interest rate expired, the credit card issuer would have a customer that was paying a much higher rate on a hefty balance. Also, if at any time during that initial 0% phase a card holder was late, the rate could be increased. Well, much of that is changing when the new law is fully implemented.
Credit card issuers will have much less flexibility in when and by how much they can increase the rates on introductory or “teaser” programs under the new rules. Payment due dates and time to pay rules are changing also, making it less likely for consumers to inadvertently miss a payment and have their rates increased. In addition, rates that are increased due to late payments must be returned to the prior interest rate if the borrower makes on-time payments for six months.
While these changes are a benefit to credit card holders, the card issuers will be missing out on potentially billions of dollars in lost fees, penalties and rate increases. Because of this, the future of the 0% credit card is in jeopardy. Card issuers must look at the cost of issuing these 0% rates and weigh that against the revenue they will no longer be collecting. The fiscal models that the credit card companies have used for the past decade and more are being challenged and the loser is likely to be the 0% credit card – and the consumers who benefitted from them.
-Jeffrey Weber
