Student Blog: Law, Markets, & The Role Of The State
CREDIT CARD RATES
The economic downturn that started with mortgages has slowly shifted its way to the credit-card industry in a way that affects all consumers. And this is not in a positive way. Card balances have been at record highs, with consumers still struggling to pay off balances from last year's holiday season. For credit-card companies, the increasing unemployment rate comes with an increasing fear of defaults. Credit-card companies say that the problem is that the weak economy and job losses have left more people unable to pay their bills, which has led to greater losses. This fear has led credit-card companies to change their terms and rates at an alarming rate.
Now, not only are consumers worrying about rising unemployment and increasing energy prices, but they are also faced with tightened credit and credit card rates raised overnight. These rate increases impact ordinary Americans, even those with good credit, in one of the worst economic downturns in recent memony. Are banks altering credit card rates to compensate for their mortgage related losses? Is it fair to consumers that financial institutions are trying to bail themselves out on the consumers account? Relief may be on its way.
Just recently, Senate Banking Committee Chairman Christopher Dodd announced that he was introducing legislation that would call for a temporary freeze on credit card interest rates on existing balances. Consumers are supposed to get some relief from sudden rate increases and other credit-card term changes in the forum of new Federal Reserve regulations that are set to take effect in mid-2010. That, is apparently not soon enough. Credit-card companies are increasing their rates now so that they are able circumvent the application of this new law in February. This new legislation would accelerate the rules’ implementation until the remaining provisions of new credit card industry regulations come into effect.
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