Consumer Law

Business Week Article on Fed's Credit Card Proposals

By Jeff Sovern

Business Week has an article, "Credit Card Rage," about consumer dissatisfaction with credit card interest rate practices and the Fed's proposed rules to rein in some of those practices, including increasing the interest rate on previously-incurred charges.  The article notes that the Fed received more than 56,000 comments on the proposal, a record setting number.  After describing some of the comments, the article discusses responses by credit card issuers:

The five largest credit-card issuing banks say that as much as consumer may enjoy lashing out, they're likely to regret the end result of the rule changes. The new regulations will curtail their ability to "price for risk," the banks say: By being able to change the rates they charge cardholders based on payment history, outstanding debt, and credit score, banks can price in the risk that each individual consumer won't be able to pay off his debt. The alternative is to cut back on low-interest offers for all cardholders, the banks say.

* * *

"We have very real concerns that the proposal will result in higher costs for cardholders across the board," says Peter Garuccio, a spokesman for the American Bankers Assn. (ABA). If the Fed rules rob them of the right to price for risk, all consumers will suffer with higher rates overall and worse teaser rates.

Of course, businesses always make such claims, but that doesn't mean they're not true in this instance.  Still, I wonder what evidence supports the claims.  (HT to Maurice E. Stucke of Tennessee)

Full post as published by CL&P Blog on August 29, 2008 (boomark / email).