- Israel hits symbols of Hamas rule; scores killed
- Mississippi abortion law can’t be enforced
- Teacher who survived Sandy Hook has book deal
- Jury awards Jesse Ventura $1.8M in case vs. ‘American Sniper’ author Chris Kyle
- Government OKs Arab-owned company to operate U.S. cargo port
- Defense lawyer: McDonnell’s wife had ‘crush’ on CEO
- Chinese hackers stole ‘huge quantities’ of sensitive data on Israel’s Iron Dome
- House unveils bill to speed deportations of illegal immigrant children
- Californians protest middle school for hiring white man to teach cultural studies
- Killer’s sentencing overturned because mother couldn’t find seat in courtroom
Credit card reform is mixed blessing
Question of the Day
NEW YORK (AP) — Your next credit card statement is going to contain an ugly truth: how much that card really costs to use.
Now, thanks to a long-awaited law that goes into effect Monday, you’ll know that if you pay the minimum on a $3,000 balance with a 14 percent interest rate, it could take you 10 years to pay off.
“Jaws will drop,” said David Robertson, publisher of The Nilson Report, a newsletter that tracks the industry. “I don’t doubt for a nanosecond that it’s going to give a lot of people a sinking feeling in their stomachs.”
That’s not all that will make them queasy.
During the past nine months, credit card companies jacked up interest rates, created new fees and cut credit lines. They also closed down millions of accounts. So a law hailed as the most sweeping piece of consumer legislation in decades has helped make it more difficult for millions of Americans to get credit, and made that credit more expensive.
It wasn’t supposed to be this way. The law that President Barack Obama signed last May shields card users from sudden interest rate hikes, excessive fees and other gimmicks that card companies have used to drive up profits. Consumers will save at least $10 billion a year from curbs on interest rate increases alone, according to the Pew Charitable Trust, which tracks credit card issues.
But there was a catch. Card companies had nine months to prepare while certain rules were clarified by the Federal Reserve. They used that time to take actions that ended up hurting the same customers who were supposed to be helped.
Consumer advocates say the law still offers important protections for the users of some 1.4 billion credit cards.
“We expected some rate increases; we expected some annual fees,” said Ed Mierzwinski of the U.S. Public Interest Research Group, an advocacy organization that lobbied for the law.
To be sure, the law takes effect while credit card companies are still reeling from the recession.
In 2007, the top 12 card issuers earned a combined $19 billion from credit cards, according to The Nilson Report. A year later, amid the financial meltdown, profits for those companies fell more than 65 percent to $6.32 billion. The plunge was largely because defaults ballooned as unemployment soared.
Profit figures for 2009 aren’t yet available. But banks wrote off about $35 billion in credit card debt last year, as the unemployment rate topped 10 percent. Analysts predict the default rate will remain at least twice as high as normal through this year, and longer if unemployment stays high.
At the same time, the law is expected to cut into future profits. FICO Inc., the company best known for its credit scores, projects the average card will generate less than $100 a month in revenue within three years, down from $200 a month before the law.
That helps explain why the industry reacted so aggressively to the legislation. Among the moves it made:
— Resurrected annual fees.
TWT Video Picks
Undocumented immigrants are proud and loud now with their demands
- Boehner rules out impeachment: 'Scam started by Democrats'
- Obama thanks Muslims for 'building the very fabric of our nation'
- Federal judge grants 90-day stay in D.C. gun case
- Obama: 'Not a new Cold War,' but new Russia sanctions announced
- Smugglers, rainstorm combine to poke holes in border fence
- Obama's brother wears Hamas scarf bearing anti-Israel slogans in photo
- PHILLIPS: Once-in-a-century stupidity
- D.C. seeks to stay judge's order allowing gun owners to carry in public
- PRUDEN: When the hangman botches the job
- Kerry's credibility questioned as fighting in Gaza rages
Obama's biggest White House 'fails'
Celebrities turned politicians
Athletes turned actors
20 gadgets that changed the world