The Senate seems to be focused about bringing about a lot of changes in the credit card sector. The credit card industry is surprised about the many moves being brought about by Senators which are not in favor of the banks. Reduction in the interchange fees and interest rate caps has not gone well with banks that provide consumers with credit cards. These two amendments that can affect the banks significantly when passed through the two houses will be a part of the financial reform bill that is being argued in the Congress.
Senator Sheldon Whitehouse, on Monday, presented a new amendment proposing that the credit card companies should adhere to the credit laws of the state in which the customer resides rather than the laws applicable in the region where their headquarters are based. Most of the credit card companies have their head quarters in South Dakota where the laws are not very stringent, thus, enabling them to charge higher rates to their consumers.
In retaliation, the banks said that it is difficult for them to keep in line with this proposal since varying laws for customers can make the entire task laborious and cumbersome. This also implies that the amount of credit offered to small business units would also be reduced.
The Senate, in the last week, passed the Durbin amendment according to which the credit card issuing banks have to reduce the interchange rates charged to merchants whenever the customer who holds their credit card or debit card uses it to make purchases.
While this news brought back smiles on the face of retailers, the banks wore a smug look. Credit card issuers like Mastercard and Visa were not too happy with this amendment being passed.
The CARD act is proof to the fact that there are consequences of passing regulations. Whenever there are new rules passed by the government to cut into the money made by the banks, the banks find a way to bounce back and make up for it in some other way. The CARD Act, the banks warned, would not go in well with consumers since it would increase the fees and the lending rates. The banks that did not bluff then are not bluffing now as well. If the CARD Act comes into effect, consumers are going to be on the receiving end.