MADISON, Wis.– A new study is calling the Credit C.A.R.D. Act of 2009 "the most significant piece of credit card legislation in a generation."
Adam Levitin, an associate professor of law at Georgetown University and author of The Credit C.A.R.D. Act: Opportunities and Challenges for Credit Unions from the Filene Research Institute, said the new law clearly presents challenges to lenders, and early ramifications can already been seen.
Among the effects of the new law, according to Levitin:
- By constraining introductory credit terms and making it difficult for issuers to change borrowing terms, the Credit C.A.R.D. Act scrambles the credit card industry's backloaded pricing model.
- Issuers are reconsidering the standard underwriting scheme that considers just FICO, stated income, and credit reports.
- Members who use a credit union credit card carry higher balances on average than users of bank cards, and credit union issuers have fewer dormant accounts.
"The C.A.R.D. Act will limit some of today's tricks and traps, but it will also incentivize large issuers to come up with new ones," said Filene. "Credit unions are at a disadvantage when they attempt to compete with large institutions on business models that require economies of scale and are centered around backloaded, behaviorally contingent pricing.
Levitin is instead urging credit unions to re-focus on their traditional consumer-friendly cards as a differentiator to for-profit entities. In addition, they should seek to replicate those economies of scale through cooperative efforts, according to Levitin.
