Two weeks ago, in my bankruptcy blog, The Cavalry’s Coming To Fight Abuse By Credit Card Companies, I wrote about Federal Reserve proposals to fight abuse by credit card companies. Some of the changes include extending grace periods for people to pay their bills before being reported as late payers, a ban against raising rates retroactively on existing balances, and banning fees simply for making credit available. From all the reading I’ve been doing of news on this proposal, it seems that despite objections from the banks that issue credit cards, the new regulations are expected to take effect by the end of this calendar year.
As a bankruptcy lawyer in Indiana, I help clients deal with credit card debt problems along with their medical debts, mortgages and car loans. Having a period of 21 days to pay their credit card bill before they’re socked with a penalty might prove very helpful to my clients, as might having limits on the fees charged on their credit cards. What I predict might happen, though, is that the credit card companies will find other ways to make up their reduced profits. They might hike the overall rates they charge. They’ll probably offer fewer “come-on” rates to lure customers. What will be most relevant to my Indiana bankruptcy clients who are already experiencing difficulty in keeping up with bills is that the borrowing limits will probably be cut. Some people might not be able to get new credit at all. I’m especially thinking of people in between jobs, nonworking spouses in the middle of a divorce, people with unpaid medical bills. In short, my impression is that the new rules might curb abuses and provide relief for some borrowers, but at the same time might force many others in the direction of foreclosure and bankruptcy.
As I read through my May 26 issue of Business Week, I found that my thoughts about the new credit card regulations are shared by someone who’s in the thick of this debate. In an interview with the magazine, Kenneth Clayton, general counsel for the American Bankers Association remarked, “While the proposal might address certain issues, it might unintentionally create bigger problems for consumers.”