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Obama Signed Credit Card Reform Bill Into Law

President Obama sanctioned the most significant changes to the America’s credit card industry in last 40 years when he on last Friday mandated an act to limit practices which, according to him, contributed to financial problems faced by consumers during this recession. He described it as a matter of establishing common sense reforms whose aims were to protect consumers. He made it clear that the White House expected consumers not to spend more than they earned, and to pay what they owed; but he also called for lender to perform with the same spirit of responsibility to which the American people aspired in their own way of living.

The new law includes a few restrictions on increase in interest rates and the amount of credit which may be offered to students in college. It will impact the banking industry but it will not be all positive for consumers either as it does not cap interest rates or fees. Robert McKinley, the founder of CardTrak.com, whose job is to negotiate with banks, has welcomed the law with open arms.

The expressed views of Marcia Sullivan, who is the Director of Government Relations for the trade group the Consumer Bankers Association, include that banks will be left with the foremost concern of how much availability there will be and what the price of credit will be, as a result of the new restrictions. She believes that every single player offering credit cards to customers will be reassessing their cost. She says that issuers will start reconsidering what they actually do and how are they going to do it in future.

The restrictions that the new law calls for, will, for the most part, take nine months to create any impact; and they will deal with a number of controversial practices such interest rate increases, penalty fees and marketing to those studying at University or College.

As far as interest rate increases are concerned, issuers will generally be allowed to increase rates only on current credit card debt if a given consumer’s bill is above 60 days overdue. Furthermore, banks will not be allowed to sanction late fees should they have delayed the credit of payments. Also, those under 21 may not be awarded a credit card from a bank unless that bank has verified that they have the means to pay, or unless parental permission has been granted.

Banks have already claimed that the higher costs, together with surging defaults and loan delinquencies, have made it a necessity for them to somehow reassess the credit card risk. But the banks’ actions have already made it a bigger challenge for consumers to make ends meet.