While consumer advocate groups are heaping praises on the Obama administration's new credit card law, some credit specialists are warning that the new measures have left out a crucial component. The new provisions would place tougher regulations on credit card companies when it comes to raising interest rates. However, the said law failed to address the issue of sudden credit limit cuts, analysts say.
Already, banks and card issuers are resorting to legal loopholes to earn as much revenue as they can without breaching the measures set by the new credit law. For instance, there has been an increase in the number of consumers whose credit lines have been slashed significantly. Experts say that the trend is because of the card companies' cost-cutting policies. Card issuers are also stepping up efforts to close down card accounts that have substantial debts. Specialists contend that with the delinquency and charge-off rates at an all time high, card companies are being forced to resort to drastic measures to mitigate loses.
In fact, a FICO-sponsored study revealed that in a 12-month period ending just this April, some 58 million Americans saw their credit limits reduced. The alarming figure has caught the attention of credit experts who say that the Congress has failed to include provisions of credit line cuts in the new consumer protection law.
However, some analysts point out that the new law has not tackled the issue of credit limit reductions because it surfaced only recently, towards when the bill was almost done. This left Congress very little time to amend the then nearly-completed bill.
The FICO study found out that in the first six months of the research period, some 25 million consumers saw their limits reduced. The next six months saw figures rising 32 percent to 33 million cuts. More surprisingly, only a third of those reductions were on cards with negative records.
The findings suggest that card companies are reducing credit lines on not only cards with poor histories, but also mostly on cards with good records. Most of the cardholders who saw their credit limits cuts were those with low or no credit debts, and those with high credit scores. This has lead many experts to believe that millions of American cardholders with good credit records will undoubtedly suffer from high debt-to-limit rations, adversely affecting their credit ratings. Consumers with good credit scores suffered an average of $5,100 in credit limit reductions, according to the FICO study.