Credit Card Industry Reform

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By now you’ve likely heard about the reforms planned for the credit card industry.  Mr. Obama has come in and saved the day for us poor, disheveled credit card users.  Why, we’re all going to benefit from these changes… right?

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Wrong (or at least that’s how I’m reading it).

So here are the major tenets of this legislation:

• cc companies must give 45 days’ notice before increasing rates on an account
• new limits on the penalties and fees that the cc company can charge
• an account must be 60 days behind in payments before the cc company can increase rates
• after 6 months at an increased rate (due to late or non-payment) if the account has maintained good standing, the rate can be reduced

What’s not said in this legislation is how the cc companies are going to pay for this imposed largesse.  How about: 

• new, higher annual fees just to have an account
• reduced “grace period” – possibly even eliminated, meaning that if you use a credit card, you are charged interest from the date of purchase, rather than the date of the bill
• other unknown ways to spread the cost of credit from the users abusers of credit to the folks who pay their bill in full each month

Now, I guess this isn’t necessarily wrong or bad business.  After all, the folks that pay their credit card bill in full every month have been the beneficiaries of a “float” – that is, essentially you’ve got free money to work with for 28 to 30 days.  So, even though we’ll experience relative depravation when this goes away, it’s not like it’s a God-given right of ours to have free short-term financing.

Maybe I’m just cynical, but I expect this legislation to cause more folks to stop using credit cards and begin using cash and/or debit cards, at least until the fees start moving to those items as well.  Cash is more costly (in the long run) to handle, so the trickle-down effect will be an increase in overhead, more than likely.

What do you think?  Leave a comment!
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Jim Blankenship, CFP®, EA, is an expert in personal retirement, IRAs, and tax issues, with more than 20 years of experience in the industry.  . Read more from this author