- The issuer has to notify the holder 45 days before a rate increase
- The issuer had to mail the statement at least 21 days before it's due
- No one under 21 can obtain a credit card without proof of income or a cosigner
But as it has turned out, there are terrible unintended consequences of the act:
1. Increased Interest Rates On The Card
The Act was passed in May, 2009; in the months before, the weighted average rate was around 14%. By December, 2009, the average was 16.4% and has remained above 16% ever since.
2. Increase In Fees
There were limits placed on fees from the Act. In order to make up for lost revenue, issuers created new ways to replace those fees, such as foreign transaction fees and inactivity fees. Yes, they don't like it when they issue you a card and you leave home without it.
3. Less Available Credit
The good news is that balances are lower: the average balance in February, 2010 was $3,752, down from over $4,000 in July, 2009. This could be due to the sluggish economy, unemployment, or write-offs, the fact remains that consumers are deleveraging. However, smaller banks have remained competitive, and they have not been reigning in credit as the big guys have.
4. Non-Working Spouses Denied Credit
Now, only an applicant's income can be considered, which really hurts stay-at-home spouses. There are ways around it, such as having the working spouse pay the other spouse a salary, but that has tax consquences. That makes it difficult for the spouse to establish credit, which may be necessary after a life-changing event, such as death or divorce.
5. More Bankruptcies
There's a theory that some of the new information printed on the statement may be discouraging financial responsibility. One of the new items we see on our statement is how long it would take to pay down our balance if we just made the minimum payment. This could be forcing people to throw their hands in the air and declare bankruptcy. Bankruptcies were up 9% in 2010 to 1.53 million.
Have you experienced any of the unintended consequences of the May 2009 Credit Card Act?