In light of the impending full implementation of the Credit Card Act this month, several credit card companies have resorted to shrewd, but legally permissible, business practices.
Last year, US credit card companies and lobbyists had aggressively opposed 'limiting abrupt contract changes', especially on interest rate increases.
The American Bankers Association explained that the law would end up penalizing credit card holders with high credit scores on their records. This would consequently allow companies to compensate for losses from 'lower-scoring' clients.
Despite these efforts, US congress passed the bill which was officially signed into a law last May by President Barack Obama. The rest of the provisions are expected to go into full effect by February 22.
However, instead of being penalized, clients with credit scores exceeding 750 continue to benefit from promotional offers and rewards.
Banks and credit institutions are doing what they can to 'retain premium customers.' This was reported by Austin, Texas-based CreditCards.com director of marketing and consumer research Ben Woolsey. Woolsey said that these clients who should have been penalized are apparently coming thorough 'unscathed.'
According to Thousand Oaks, California-based RK Hammer Investment Bankers, loans which are considered as uncollectible, specifically 'credit-card write-offs', increased by 59% from $56 billion two years ago to $89 billion last year. RK Hammer further speculates that financial institutions may lose as much as $5.5 billion in 'interest income' due to the new law, and about $11 billion by 2011.
Redwood City, California-based BillShrink.com co-founder Samir Kothari has compared credit pricing and terms for clients. Kothari said that credit companies will naturally have to compensate for lost income but are not willing to compromise their efforts of rewarding 'affluent cardholders.' However, Kothari said that credit companies may opt to charge for inactivity fees for clients who do not use their cards for a certain period of time.
RK Hammer chief executive officer Robert Hammer admits that issuers have to deal with being in a 'real high-wire act' as companies are forced to do everything they can to keep their customers and, yet, charging church with just the right amount to compensate for lost revenues.
Meanwhile, customers who have lower credit scores seem to be at the lower end of the stick. Since the nationwide recession of the 1930s, it has been progressively more difficult to get credit as institutions scaled back lending options.
The loan officers' quarterly survey of the US Federal Reserve released in November last year revealed that 58% of banks intend to lower their credit limits for clients with lower credit scores before the new law began to take effect. In the same study, about 53% of banks intend to increase the minimum required credit scores for clients who have lower ratings.