Now that we have perspective on how the credit card regulation ultimately affected American families as well as the economy, a look back can provide even strong objectivity. This trip down memory lane provided insight into how realistic the concerns were and how well, if it all, the regulation has held up to its purposes.
Many may recall the debates over the past several years. There was a broad line drawn in the sand on both sides, and while both sides – those who supported new regulation and those who disagreed – had legitimate concerns, it appears much of it has come full circle.
Those who believed credit card regulation was an absolute must offered strong justifications. Some of those beliefs come from the stance of credit card companies having entirely too much power over their customers, the ease in which unethical tactics were used, the belief that too many consumers were entering into a lifetime of debt with no real education on how to manage their money and they believed many card networks had too much of a strong hold in the sector and took advantage of their position.
These folks vehemently opposed any kind of reform and used financial reasons, including the potential loss of profits and higher fees for card holders. They argued a vicious cycle could occur in that consumers simply stopped using their credit cards, which could only lead to a deep economic problem. They believed consumers should shoulder their responsibilities of paying debt off and using the current credit environment wisely instead of relying on the government to step in and “fix it”.
There’s no doubt that millions of American consumers spend a large percentage of their salary on paying down debt. Credit card debt is most challenging due to the revolving line that credit cards offer. This, coupled with many who don’t understand how interest rates work is often a recipe for disaster. And, too, there are those who never pay it off in its entirety.
Do This, Don’t Do That
So many insisted the structure is what needed changing: don’t raise the interest rates on customers who are already struggling to cover their financial bases. It only adds to the problem; punishing these consumers was the wrong thing, they argued. But were credit card companies maliciously complicating things? One supporter who believed credit card regulation was badly needed, said,
The practice of tripling or even quadrupling a consumer’s interest rate for late or missed payments… amounts to unfair lending and must be addressed.
It’s true. Much of this debate began around the same time foreclosures were making the evening news, as were job losses and a sinking economy. Many said Americans were living with the knowledge that there wasn’t enough coming in each month to cover the bills and their priorities were keeping a roof over their family’s heads and ensuring there was food in the house.
Keep Charging, Americans
Ah… but there those who said nothing would help the economy more than millions of Americans using their credit cards for whatever needs they had. Many of these folks included bank presidents and even politicians. They said credit cards were the fuel that drove the economy. If there were fewer profits made by the card companies, those losses would be passed on to the consumers – yet another vicious cycle from a different perspective, albeit the same method. Use credit cards less often and spending as a whole will decline significantly, they argued.
Kenneth Clayton of the American Banker’s Association reiterated his belief that new legislation would only complicate and would cripple efforts to “provide access to credit for millions of Americans and small businesses every day.”
Still others believed that instead of raising interest rates and fees, efforts should be made to help consumers make informed and unhindered decisions for themselves.
In the meantime, President Obama’s CARD law went into effect on August 20, 2009. It required, among other things, credit card companies to issue a 45 day notice of significant changes in the terms of their customers’ cards. For now, though, the economy continues to struggle and Americans, while they have less money, they are borrowing with a more responsible mindset – even if employment, housing and other spending remains weaker.
So have the solutions worked themselves out? In many ways, they have; however, there are other factors that play into a better economic outlook. The national and global economies come together to help define the present situation as well as what the future holds. There’s one thing for sure, even if nothing else is: the current economic times are still challenging – and until those dynamics play out no one will really know for sure how well new regulations are holding up.