An early victory for the Obama administration in 2009 was the passage
of the Credit Card Accountability, Responsibility and Disclosure
Act (CARD) in May. The Act seeks to improve consumer protection
in the credit market by limiting what credit card companies can
do in the event of consumer default; limiting interest rate hikes;
changing rules on late fees; and requiring companies to offer consumers
more information about their long-term balances.
Credit card companies, however, are not sitting back and waiting
for the new consumer-centered laws to take effect. They are taking
active steps to do what they can to thwart the new laws slated to
go into effect in early 2010.
Credit card companies have begun raising interest rates for those
who are carrying the largest balances on their cards. Creditors
argue that higher interest rates are necessary for riskier debtors
who may face unemployment in a down market. Such rake hikes, however,
actually seem to cause some debtors to miss payments. Another tactic
that credit card companies have used is increasing the minimum payments
to reflect a higher percentage of the balance due.
Due in part to the credit card companies' actions, personal bankruptcies
have risen almost 10 percent just this past October. A significant
portion of the responsibility lies with credit card companies' interest
rates, some of which reach 30 percent. Many people hope to get into
a debt- relief plan with a credit counselor or cut a deal with a
creditor before having to file bankruptcy; for some, however, bankruptcy
has become inevitable. Successful bargaining with a credit card
company is becoming less likely as creditors deal with new regulations.
They have become increasingly less likely to take on risks and less
receptive to pleas over the phone.
How will small businesses be affected by such policies on credit? Ironically, the credit card rate hikes that are coming swiftly before the dawn of the new year will disproportionately affect those with excellent credit scores. Many businesses fall into this category. Those who have good credit scores may get rate hikes as credit companies make a desperate last-minute attempt to capitalize on the recession and the holiday shopping. Businesses can choose to do away with credit cards they do not use or choose to switch to other loan instruments.
Businesses, as well as consumers, are better off waiting until the new regulations take effect before opening new credit card accounts. Those who are considering bankruptcy now, however, should contact us to review their options.