ALEXANDRIA, Va.–Federal regulators, including NCUA, adopted rules last week that will change the face of the credit card industry. Now some are suggesting those rules may clash with other government efforts to promote liquidity.
In recent months, regulators have been vigorously trying to encourage banks to offer more loans as a means of stimulating the economy. But industry representatives and other observers said the new credit card rules were likely to have a tightening effect on credit.
“The effects of this are going to be pretty severe,” said Oliver Ireland, a partner in the Morrison & Foerster law firm. “People are going to see either some combination of rising prices or a reduction in the availability of credit by either cutting lines or simply not making credit available.”
The rules, largely unchanged from a proposal released in May, would ban certain card practices, limit when credit card companies can raise interest rates, dictate payment allocation methods to benefit consumers, and curtail late fees.
Bankers have argued that the changes go too far–particularly in limiting card companies’ ability to raise interest rates and price for risk. Doing so will produce higher rates across the board for customers and fewer cards, they said.
The rules will also cost banks a normally reliable source of income. “The rate-change provision, combined with the payment-allocation provision, could affect up to $12 billion in revenue a year industry-wide,” Mr. Ireland said.
Consumer groups counter that industry fears are overblown and said that reducing credit lines for some people is a good thing.
“Credit card companies have been reducing lines for their own reasons already, but we think that’s basically post-hoc underwriting,” said Gail Hillebrand, a senior attorney for Consumers Union. “You aren’t doing consumers any favors by giving them more credit than they could handle.”
Though the rules do not take effect until July 1, 2010, industry representatives said they could start having an impact much sooner. “It’s my hunch that some changes aren’t going to wait until a year and a half from now,” said Robert Hammer, the chairman and chief executive of R.K. Hammer, a California bank card advisory firm. “Issuers have most likely been putting some contingency plans in place in the event that this passed.”
