Proposed rules for credit card reform would limit excessive fees and interest rate increases, and otherwise protect cardholders. But, argues the American Bankers Association, the rules may actually be negative as lenders attempt to make up for lost revenue, says ABA spokesman Peter Garuccio.
Here's what the bank organization says about the new rules in the works:
MainStreet: Why are credit card companies cutting credit limits?
Garuccio: Banks that make credit card loans have got to get the money from somewhere. Investors are sitting on the sidelines. They’ve pulled out of [credit card underwriting] and the cost associated with making credit card loans has gone up, or you can’t make as many loans, so credit lines are cut.
Companies don’t cut limits to below outstanding balances, but they might lower it to be very close to your outstanding balance.
How will banks make up the revenue lost when people walk away from their debts (reportedly $395 billion over the next five years)? Charging annual fees? Taking away card rewards?
I wouldn’t want to speculate, but they’re all possibilities. It’s like how riskier drivers pay more for car insurance. The same is true in the credit card market.
The Fed has said that, for the first 12 months of a credit card relationship, you can’t adjust the APR at all, but people’s credit card [habits] could change in a short period of time. To cover potential losses is to increase fees on the whole. If you can’t adjust premiums for a riskier driver. It costs the rest of us who are driving safely a little more.
If more credit cards require annual fees, how much will they charge?
It’s anybody’s guess where they could go.
Right now, the accounts that carry annual fees are tied to a rewards program. But there’s definitely a possibility that there will be annual fees even without a rewards program. It’s going to depend on the individual issuers. I think it’s fairly safe to say that it’s possible that all credit card issuers could require annual fees.