With President Obama's historic legislation due to take full effect in February, some consumers and card issuers are bracing for tougher regulation that might make it harder for cash-strapped Americans to get a hold of plastic.
Officially called as the credit card Accountability, Responsibility, and Disclosure Act of 2009, the new law is aimed at protecting cardholders and consumers against bank practices considered by many as unfair.
The new legislation has several mandates, which make it harder for banks and card companies to raise interest rates without warning consumers beforehand. It also gives cardholders a better chance at settling their debts by allotting excess payments over monthly minimums to balances with the highest rates.
Proponents and consumer advocacy groups have hailed the new law as a milestone in consumer rights. Because of the new restrictions, however, banks and card issuers are already resorting to higher fees and charges to make up for lost profit. With total industry losses amounting to a staggering $82 billion this year, experts believe that card companies and financial institutions would be more cautious about issuing credit cards to just anyone. In fact, they say, the new law would require consumers under the age of 21 to have a co-signer or provide proof of income for them to get credit cards.
As a result, more and more Americans are turning to another type of card, the secured credit card. Experts say that secured cards are just like the regular one except that they require a cash deposit upfront. Cardholders are required to have a bank deposit equal to the credit limit of their credit cards. This is to ensure that they have enough money to pay off their debts. Many experts say that this form of credit is perfect for young consumers for them to build up a clean credit history without the risks of falling into debt.
Industry analysts also say that secured credit cards can be used in almost any situation or retailer that accepts regular credit cards. With the February deadline fast approaching, many banks and card issuers are expecting a sharp increase in applications for secured cards. Unlike regular cards, these do not require a co-signer or a valid proof of income. Students, though, have to maintain their bank deposit for them to continue using their cards.
Despite this, some groups are criticizing this particular feature of the law, saying that it is discriminatory. They argue that the law restricts the freedom of young consumers to get credit despite them being legal adults.