As lawmakers and consumer advocates hailed the recent passage of a new law designed to protect credit cardholders from rising interest rates and other practices well known in the credit industry, experts warn that the celebration may be short-lived.
Despite the new legislation's apparent benefits for many Americans who suffer from large debts, analysts say that there is another side to the much-praised law.
To preempt any income losses from the full implementation of the law, banks and credit companies have started raising charges and transfer fees for many cardholders. Many card issuers who have not charged annual fees in the past are already notifying cardholders of new fees. Currently, around 20 percent of card companies impose annual fees. Experts say that this number can rise significantly in the months and weeks leading up to February of next year.
This can mean bad news for many cardholders who pay their dues on time and in full, analysts say. Card companies are also scaling back their rewards programs and raising fees in anticipation of lower profit starting next year.
Some analysts say that lawmakers in Washington have overlooked the implications of a more restrictive credit law on cardholders considered as responsible consumers. Experts point out that not all Americans who use plastic owe large amounts of money to banks and card companies. In reality, they say, a large portion of the credit card-bearing population settles their dues regularly and in whole.
The new law, analysts contend, is unfair for consumers who monitor their expenses diligently and plan their budgets based on their income. Unlike many cardholders who purchase too often using credit, responsible consumers switch between plastic and cash to minimize the risk of stacking up huge debts.
Responsible cardholders can also expect to see fewer rewards as a result of the new law's tougher regulations. Most card companies offer some sort of rewards program to entice their customers in staying with them. In the past card issuers were very generous in giving out freebies and redeemable items or services, experts say. The economic crunch and the impending restrictions are forcing most of these banks and institutions to scale back their programs.
In fact, analysts say, there are even banks that have issued notices to cardholders about the termination of some rewards programs. Experts say that this is one indication that financial institutions are maximizing profits by minimizing rewards. They also recommend that cardholders make use of accumulated reward points before card issuers start to decline any claims.