Credit-Card Law to Revamp How Most Consumers Spend
The credit-card overhaul that President Obama will sign into law Friday could have a bigger impact on consumers than any other economic initiative so far, with some experts predicting a broad restructuring of how credit cards are priced, managed and marketed.
"These are monumental and expensive changes for credit card issuers to implement," said Duncan Douglass, a lawyer with the firm of Alston & Bird who specializes in payment law.
Every American with a credit card will see sweeping changes in the market, with limits on sudden hikes in interest rates that drive consumers deeper into debt. Even cardholders who pay off their balance each month may face new annual fees or lose out on lucrative rewards programs.
The legislation, which Congress approved earlier this week, represents the first of several reforms on banking and market rules that the Obama administration plans in hopes of preventing another financial crisis.
Included in the bill is an unrelated measure by Sen. Tom Coburn, R-Okla., that would allow people to bring loaded guns into national parks and wildlife refuges.
The bill will revolutionize the market by restricting when and how a card company can raise an individual's interest rate, who can receive a card and how much time people are given to pay their bill.
In general, the new rules — which go into effect in nine months — will protect debt-ridden consumers from many of the surprise charges common in the industry, such as over-the-limit fees and costs for paying a bill by phone.
The bill will hurt the profits of major card issuers such as Citigroup, Bank of America , JPMorgan Chase and Capital One , analysts said
Banks will need to make up the cost somewhere, and cardholders who pay off their balance in full each month could see new annual fees and lucrative rewards programs canceled. Credit could become harder to come by too.
Under the bill, a customer would have to be more than 60 days behind on a payment before seeing a rate increase on an existing balance. Even then, the lender would be required to restore the previous, lower rate if the cardholder pays the minimum balance on time for six months.