Credit Card Reform – Debtors Lose?
As the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 reform legislation finally takes effect Feb. 22, the predictions, speculation, and conjecture about its effects will soon be swept aside.The realities are on the way. One persistent question is whether credit card issuers, hoping to make up for their newly restricted ways of charging fees and interest, will find new and creative ways to cover the loss. Assuming the likely answer of “yes,” then the methods that the industry chooses to make up these losses could have serious consequences for the financial health of millions of Americans.
One group of people who stand to gain or lose based on these decisions will be those people who are already suffering from credit card debt. As credit card companies make these decisions, they should be mindful of the purpose of the legislation, to look after the interests of the consumer. A good example is Citibank’s recent announcement that it will return to the departed tradition of the annual fee, placing one on its cardholders’ accounts starting April 1, 2010, according to media reports. Citibank will waive this $60 figure, but only if the cardholder places $2,400 on the card in one year.
Not all the details are known about this fee, but you must wonder about the effects of the fee on people who are already deeply in debt. If you are too deep in debt to afford to put $2,400 more on a credit card, would you risk a $60 fee being placed on your account? If so, that new fee would, presumably, produce interest over time, and if a person is in debt on multiple cards with a similar policy, that money could soon add up to a stash of cash.
A second question is whether these fees will potentially encourage more debt and the effect that might have on a nation of debt. If many cards use similar fees for minimum purchases, will it discourage consumers from taking out more credit than they can afford? Will it force casual users to close their accounts? Or would annual fees encourage people to run up a larger bill and go further into debt? If it is the final choice, that could be trouble for a nation with so many people already suffering from debt.
Only time will tell what course the banks ultimately will pursue. However, they need to be careful to be fair to those already in trouble with their credit card debt. There are potential unforeseen ramifications that this legislation could cause that – rather than protect them – might come back to harm the most vulnerable consumers in debt.
K. Bowen is a writer with Greenshield Financial Services, a Dallas-area Financial Health Management company that helps its clients resolve their outstanding debt.
