Consumers Win on Credit Card Laws

The new US credit card reform laws that gave consumers some relief from credit card companies’ policies did not immediately bring on the predicted backlash expected. The new laws have restricted sudden hikes in interest rates, how payments are applied to accounts, and how over-the-limit fees are charged.

Since the new regulations cut sharply into the banks’ profit centers they were expected to replace these losses by restoring annual fees, discontinuing lower rates for new customers, and cutting expenses such as reward programs. However, banks have not retaliated.

Nearly 80 percent of new card offers come with reward programs and that hasn’t changed. Lower introductory rates are up from 37 percent last year to 56 percent in 2010. Excellent offers of 0 percent for up to 16 months are being offered to consumers.

Andrew Davidson, senior vice president of Mintel, an international market research company, is reported to say that the predictions made last year were more than likely exaggerated. Mintel’s research shows that credit card companies have been able to adjust to the new law without having to make drastic changes to keep profits up.

Doug Miller of Corporate Insight, a consulting firm, is of the opinion that as competitive as credit card companies are they may have decided to keep things as they are in order to keep customers. Some banks may fear losing customers to other companies if they attach fees to their credit cards. They may also want to avoid negative publicity.

Others feel that the credit card companies are biding their time before responding to the new law. Brian Riley, research director at the financial consulting firm TowerGroup, feels that banks have been kept busy with unpaid debt reaching into the billions of dollars and adjusting their policies to comply with the new laws.

Banks will have to eventually find ways to adjust their policies to replace losses. Riley believes that when banks do decide to regain profits they will hit the consumer hard to make up for lost time. He predicts it will be the first quarter of 2011 before we see what the banks have in mind.

Mailed credit card offers have increased over last year but are below the offers before the recession. Banks are now concerned with making offers to only the best credit customers. Offers are going out only to people with the best credit scores. Superprime consumers with credit scores of 760 or higher are the target for mailed offers. Superprime customers make up about 35 percent of consumers.

As of February 2010, interest rates have climbed up to an average APR of 18.8% from 16.8% two years before, which seems modest compared to the gloom and doom predictions of naysayers. Increases in fees for transferring balances from one credit card to another may be a good thing, making individuals think twice before borrowing from Peter to pay Paul.