Thursday, December 18, 2008

New Limits on Credit Card Companies; in a Related Note - Hell Freezes Over

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The End of Days must approach; for one of the few times I can remember in the past two decades, regulators in the United States of Corporations sided with the consumer instead of the corporation. Of course, credit card companies claim this will restrict many from the constant flow of credit. Considering this was the lobby that made bankruptcy far more expensive 2-3 years ago, it's a big change in the atmosphere. Thank you Federal Reserve for doing something for the American people for once.

Now, what will be more interesting is after rules have been altered in favor of corporations for a few decades, if this is a short term stance change, or the beginning of an era where the actual citizens of the country matter more than the political donors. Either way the ethos of "light" or "self" regulation, after burning down the country - seems to be out the door. Let's see if we overreact in the other direction - surely there is some fair middle ground; but we'll probably miss it. We shall see in a few years.
  • When the federal government approves new rules banning "unfair and deceptive" practices today by credit card companies, it will hand a victory to consumer groups who have long complained of lax oversight of the $970 billion industry.
  • Even with all its lobbying power, the credit card industry was not able to beat back the most sweeping overhaul in decades. Financial companies and trade groups argue that regulators are overreacting to problems in ways that will limit the availability of credit to customers.
  • Today's move by Federal Reserve, the Office of Thrift Supervision and the National Credit Union Administration is the first of what could be many attempts to further regulate the industry, as several members of Congress plan to codify the Fed's regulations next year and perhaps pass even more stringent rules.
  • It also represents a significant shift in the thinking of the regulatory agencies, which still are run by Republican appointees. Analysts note that regulators have stepped back from an emphasis on educating customers about what they should do, primarily through disclosures, in favor of telling companies and customers what they can and cannot do. ("educating customers" and "letting the chips fall where they may" only works within a highly financially literate society - i.e. not in the U.S.)
  • "It just shows how the world has changed," said Brian Gardner, who follows financial regulation issues for the investment bank Keefe, Bruyette & Woods. "Eighteen months ago the Fed was focused on disclosure and transparency, and now they're coming out with a prescriptive, rules-based guidance. It's a whole different world."
  • The three agencies declined to release the final draft of the regulations. But the version made public in May would, among other things, prevent banks from raising interest rates on existing balances unless a payment was more than 30 days late, charging late fees without giving the borrower a reasonable amount of time to pay and applying payments so that debts with higher interest rates are repaid last. (the last one really bugs me) Sources said regulators would give card issuers until mid-2010 to comply with the rules.
  • By limiting banks' ability to manage risk, regulators would be forcing the institutions to withhold credit, raise interest rates or eliminate such programs as zero percent balance transfers to compensate for it, industry officials and analysts said. (sniffle... so no more "free credit card with T shirt offers for every 18 year old on campus? darn)
  • But the changes also could make it more difficult for millions of people with bad credit to get what is known as a subprime card carrying higher interest rates, some experts say. (credit is not an America right, is it?)
  • Based on data collected from a group of banks, Oliver Ireland, a partner in the financial services practice at the law firm Morrison & Foerster, predicted that the amount that the industry stands to lose in annual revenue, if the rules go into effect as proposed, would be about $12 billion.
  • Several consumer advocates and members of Congress said the card companies were trying to scare regulators into watering down the rules. They also pointed out that in recent months, banks have been amending terms on existing accounts while scaling back on credit card offers. (exactly - the things they are "threatening" to do if these rules go into effect - well, they are already doing them due to financial conditions)
Now if we could only get that airline consumer bill of rights thing passed so no citizen should be stuck on a tarmac for 7 hours, then we're really cooking.

Cramerica - for the corporation, by the corporation (but a little less so today)

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