Discover who wants to Chase Obama out of the nation's Capital One day soon
During the 2008 presidential election campaign, Wall Street famously and generously backed Senator Obama when it came to campaign contributions. The financial services industry did so, according to a Reuters report at the time, "despite worries that his administration would raise taxes and take a tougher line on trade and regulation."
For credit card companies, those fears of greater regulation were realized in the Credit Card Accountability Responsibility and Disclosure Act of 2009. It seems all but certain that a second Obama administration would veto any repeal of that legislation, so are card issuers secretly praying for -- and, perhaps, paying for through PACs -- a Romney win, along with GOP House and Senate majorities, in November?
Some credit card terms may be out of line with CARD Act
Paranoia's a terrible thing, but your blogger began to wonder if the above conjecture might be the case while he was recently reviewing the terms and conditions attached to credit card applications. Some of them seemed not to be strictly in line with the Credit CARD Act's provisions, and it occurred to him that the variations may be there in preparation for deregulation.
He sampled the terms attached to one card each from Capital One, Chase and Discover (choosing those issuers purely on the basis of today's overwrought headline, for which he apologizes). And none of these issuers appeared to be completely in accordance with current regulations.
Penalty credit card interest rates
Take penalty rates. Chase, for instance, said that a penalty APR of 29.99 percent (almost double the standard 15.24 percent on the card examined) could be applied to your account for any one of three reasons, including if on just one occasion you're so much as a minute late in making a payment. And Chase's Pricing Information sheet goes on: "If your APRs are increased for any of these reasons, the Penalty APR will apply indefinitely."
Really? That's not in line with the current law on penalty credit card rates. According to the Federal Reserve:
If your credit card company increases your APR, it must re-evaluate that rate increase every six months. If appropriate, it must reduce your rate within 45 days after completing the evaluation.
So, far from applying "indefinitely," penalty credit card interest rates -- at least after a minor infringement -- should be reduced after no more than 7 to 8 months of on-time payments.
Limits on late fees
All three credit card companies correctly said that late fees could be "up to $35." However, none of them explained that under current law the maximum late fee can be charged only if you make late payments more than once within a 6-month period. For a first offense, and others separated by more than 6 months, the maximum amount payable is $25, and even then no late fee can exceed the minimum payment to which it applies.
That said, the Credit CARD Act seems to have had a beneficial effect on late fees. In February 2011, one year to the day after many of the Act's provisions came into force, the Consumer Financial Protection Bureau reported that "the average size of the late fee declined from $35 to $23."
Consumer groups and regulators are always urging card issuers to make their agreements easier to read and understand, and that may well be the reason none of the three examined explained the complexities of the late-fee rules. However, by simply saying "up to $35," they could also -- perhaps by chance -- be making it easier to increase those fees in the event of deregulation.
Credit card regulation and customer satisfaction
Nobody likes being told what to do, and those in the financial services sector are no exception. But some argue that card issuers themselves have benefited from the Credit CARD Act. In "CARD Act a win-win for credit card companies and customers," IndexCreditCards.com quoted ConsumerReports.org:
New federal rules barring many abusive practices by credit card issuers seem to be having an effect: Only 12 percent of Americans said their credit card companies had generally treated them unfairly, according to Consumer Reports' nationwide survey, down from 15 percent in 2010, and 22 percent in 2009.
Of course, all enterprises like their customers to like them, but their main priority is their bottom lines. So how much has card regulation affected those? There's bound to have been some impact, but it can't have been too extreme. At least, not if recent predictions from Moody's turn out to be correct.
On Apr. 10, MarketWatch reported that the ratings agency expects the top six U.S. card issuers to do very well this year, quoting Curt Beaudouin of Moody's:
Together with expected balance growth of about 5 percent, continued improvement in asset quality should lead to a significant increase in profitability this year, with pre-tax profits likely to go up by about 35 percent.
A 35 percent jump in pre-tax profits just this year! If your blogger ran a credit card company (yeah, right), he'd take his bonus, buy a private island and retire. And, as he contentedly dipped his toes into the azure waters lapping his own beach, he'd struggle to care less who wins in November.
Published 04/16/12 (Modified 01/13/14)