Dodging Credit-Card Reform
Card issuers are already proposing new fees and thinking up ways to subvert interest-rate restrictions
By Ben Levisohn
http://www.businessweek.com/magazine/content/09_38/b4147026262530.htm?wtfNew credit-card rules, designed to curb the industry's abusive practices, went into effect a few weeks ago. But already lenders have found ways to get around the regulatory roadblocks—moves that may cost consumers in the end. Says Gwenn Bézard, head of research at consultant Aite Group: "The industry was against the spirit of the act."
The reforms are sweeping. The Credit Card Accountability, Responsibility & Disclosure Act of 2009 covers everything from billing to fees. The first wave of changes hit in late August, with another to follow early next year. For all their worries, credit-card companies may not see dramatic losses. In fact, the spate of interest rate hikes on credit cards, driven in part by the recession, may boost profits. Says Gene J. Truono, managing director at BDO Consulting: "Issuers always reinvent themselves."
Companies have already rethought rates. Under the new law, issuers can't raise them without 45 days' notice. But there's a loophole: The rules don't apply to variable-rate cards, with rates that float up and down. That's why companies are moving more consumers into such cards, whose rates are likely to soar from their record lows. Researcher Bankrate.com (RATE) estimates variable-rate cards will account for 75% of all cards this year, up from 65% in 2008.
C.D. Reimer of San Jose was switched to a variable card last month. At the same time the issuer, Barclaycards, upped his rate to 26.99% from around 16%. Reimer could have canceled the account. But the 40-year-old was laid off from his software support job and depends on plastic. Barclaycards declined to comment.