| Owning a credit card is fast becoming a better deal | | | | interest on portions of debt that is paid on time |
| for consumers as the credit card industry (banks and | | | | during a grace period, and raising interest rates |
| other credit card issuers) starts changing their | | | | because a customer is late on payments to other |
| practices and implementing what can only be | | | | creditors (not the credit card issuer) - which is |
| construed as more lenient practices, under the | | | | termed "universal default" in the industry. Legislation is |
| pressure exerted by Congress. This article offers the | | | | being proposed that would make some of these |
| whole story. | | | | practices illegal. |
| In economic figures released by the Commerce | | | | These are serious concerns being raised by our |
| Department at the end of May 2007, the U.S. | | | | lawmakers. Other regulators appear to agree with |
| first-quarter gross domestic product (GDP) grew by | | | | the lawmakers. The Federal Deposit Insurance |
| 0.6 percent. This was the weakest quarterly | | | | Corporation chairman is not fully convinced that |
| expansion since the fourth quarter of 2002 and was | | | | problems regarding credit card industry practices will |
| well under the 0.8 percent growth rate projected by | | | | be resolved by full disclosure alone. Other federal |
| Wall Street economists. | | | | regulators who were also called to testify expressed |
| Housing continued to be a drag on the economy and | | | | support for legislation that would give their offices |
| was though likely to remain so in the coming months. | | | | the authority to curtail practices that are deemed to |
| However, there were positive signs as well, which | | | | be deceptive or unfair. |
| could signal a healthier rate of growth towards the | | | | Because of the close scrutiny by Congress, several |
| end of the year. One of these good signs was | | | | major banks have started to temper or remove |
| personal consumption spending - which powers | | | | some of their most criticized practices. Banks may |
| two-thirds of the economy - increased by about 4.4 | | | | need to do more to allay consumer fears, suspicion, |
| percent versus the 3.8 percent figure in April. | | | | and eventually, resentment. |
| In a related report, the Labor Department reported | | | | How banks will respond remains to be seen. |
| on June 6 that U.S. worker productivity had also | | | | Already one of the major credit card issuers, Chase, |
| increased at a much slower rate than originally | | | | has begun to articulate its response. The bank has |
| estimated. This report raised fears about possible | | | | issued a June 12 statement saying that in their view |
| inflationary pressures as labor costs go up. | | | | the complex credit card system that exists today will |
| Most of the performance figures had already been | | | | be able to sustain its success if the two principal |
| anticipated. | | | | parties in the relationship - the credit card issuers |
| What came as a surprise was that borrowing by U.S. | | | | (banks) and the credit card holders (individual |
| households had expanded by less than half ($2.6 | | | | consumers) - acknowledge that theirs is a shared |
| billion) of forecast ($6 billion) as credit card use | | | | responsibility. The credit card holder must use the |
| actually fell for the first time in 13 months. This | | | | card in a responsible manner; the bank must strive to |
| increase in consumer credit was the smallest monthly | | | | meet the credit card holder's needs. |
| increment in seven months, since October. | | | | Overall, the bank says the credit card has broadened |
| It seems consumers are pulling back from taking on | | | | access to credit to all consumers. It insists that |
| more debt. Revolving credit, which includes credit | | | | average interest rates have gone down from close |
| cards, declined $403 million in April, the first monthly | | | | to 20 percent to only 12 percent approximately, and |
| decline in the 13 months since March 2006. | | | | in many cases issuers no longer charge annual fees. |
| Consumers may be cautious about contracting more | | | | The bank has defined what responsibility should mean |
| debt while housing remains in a slump and economic | | | | for the credit card holder: pay on time; keep within |
| growth has been so weak. The decline in revolving | | | | your credit limit; and maintain your creditworthiness. |
| credit has been interpreted as a sign that consumers | | | | By following this simple equation, the credit card |
| are paying off more of their credit card debt. | | | | holder gets an interest-free loan for a certain period |
| In the middle of these mixed signals from the various | | | | when they pay off whole balances every month, |
| sectors of the economy, legislators have expressed | | | | fraud and loss protection, and other benefits, plus |
| their dismay over practices being followed in the | | | | instant and constant availability of credit. |
| credit card industry. The House Financial Services | | | | The bank also delineates what it sees as its |
| subcommittee hearings last Thursday, June 7, called | | | | responsibility: make sure customers understand the |
| for stronger action by the Federal Reserve to control | | | | terms of their credit card account; show them how |
| what lawmakers called the deceptive and predatory | | | | to manage their credit cards; give them tools that |
| practices of credit card companies. Lawmakers | | | | help them pay promptly time and stay within their |
| subjected executives of major credit card issuing | | | | credit limits; spot those in trouble and point to |
| banks to intense questioning during the hearing. | | | | avenues for financial solutions; and evaluate more |
| Saying that the average American household carries | | | | carefully the credit applicant's capability to manage |
| $13,000 in credit card debt and overall credit card | | | | debt prior to credit card issuance. |
| debt runs in the hundreds of billions of dollars, the | | | | The bank has implemented a set of initiatives to |
| panel chairwoman Rep. Carolyn Maloney, D-N.Y., was | | | | promote greater customer understanding of the |
| reported to have expressed fears "that we will see a | | | | terms of their credit card account and to provide |
| perfect storm in consumer credit as these pressures | | | | tools for managing accounts. This program is |
| converge on Americans, and that the ripple effect will | | | | channeled mainly through the company's special |
| be felt throughout our whole economy." Maloney | | | | website, which it says details everything in clear and |
| cited the success of credit cards in providing for the | | | | simple terms. Some of these initiatives involve: |
| credit needs of the American consumer but also | | | | Putting detailed instructions and calculations that |
| emphasized that with great success came "great | | | | clarify the implications of paying only the minimum |
| responsibility." | | | | amounts instead of paying more on the balance, if |
| Lawmakers think the Fed needs to do more to | | | | not paying it off entirely; Outlining procedures that |
| protect credit card users, and propose to give other | | | | allow customers in the military to keep their credit |
| bank regulators the authority to curb industry abuses, | | | | card accounts current when deployed overseas; |
| including policies that confuse consumers and push | | | | Allowing all customers to choose their preferred due |
| them into more debt. The Fed is requiring credit card | | | | date for payments; Providing instructional materials |
| companies to extend to 45 days the notification | | | | for students and first-time credit card users to guide |
| period to consumers before they implement any | | | | them in making prompt payments and keeping within |
| changes in the terms of an account. The present | | | | credit limits; Installing a system of communications |
| practice is that when banks want to make any | | | | where customers can sign up for timely alerts sent |
| changes, for instance, to increase interest rates or to | | | | via phone, e-mail and text messages to remind them |
| impose a higher penalty rate for missed or late | | | | of payment due dates; Providing for a system of |
| payments, they will give only 15 days notice. | | | | automatic credit card payments; and, Creating an |
| The Fed's proposed full disclosure requirements | | | | outreach program to reach those who may be |
| would, among other things, allow consumers a longer | | | | having financial difficulties and to determine what |
| time to look for another credit card. But legislators | | | | assistance and financial programs can best help them. |
| feel this is not enough and want regulators to impose | | | | Individual credit card holders like you have made your |
| an outright ban on abusive practices. They do not | | | | opinions heard, to both the legislators and the credit |
| want to create new laws, but prefer to see | | | | card issuers. By heeding your opinions, and altering |
| regulators act on the problems. | | | | the criticized practices, holding a credit card is |
| Legislators are targeting other practices like charging | | | | becoming even better than before. |