Credit Card Regulation Could Adversely Affect Consumer Spending
Congress is working at passing new legislation that will restrict credit card companies lending practices. This comes after thousands of people have complained to the Federal Reserve’s website that credit card companies are not abiding to lending rules that are fair to consumers. There are arguments from both sides of the spectrum that seem justifiable. However, it will be up to Congress to come up with a solution that is viable for everyone.
The consumer argument is that credit card companies are being extremely unfair in their lending practices. For example, credit card companies are quick to raise your interest rates when you are delinquent with your payments. Many card issuers will even raise your rates if you are one day late. In addition, credit card companies are also raising interest rates on people with outstanding balances. This makes it harder for people to pay off their debt. The major complaint is that credit card companies are too quick to raise rates and very unforgiving of their clients.
The credit card issuers argue that restricting their ability to raise rates undermines their ability to manage risk. The further regulation of credit card issuers could also affect consumers adversely as well. Should card issuers be required to adhere to much stricter guidelines, they may get even stricter and contract credit even more. It is already rumored that credit card issuers may cut up to $2 trillion in existing consumer lines of credit. This would greatly affect the American consumers’ liquidity. Credit cards are the consumer’s second largest source of spending power next to their paychecks. The reduction of credit card lines of credit will further hurt the economy. Every sector of the economy will be affected should consumers loose $2 trillion in spending power.
Credit card issuers are urging Congress not to take any action until this recession is over. However, consumers want the government to take action quickly to keep unfair credit card practices from further unraveling. Consumers want card issuers to give them at least 30 days to make a late payment, however, card issuers claim this is too much time. The problem is that there are too many households with excessive credit card debt. Many people abuse their credit cards and often times do not have any intentions of paying their bill responsibly. This adversely affects the large majorities that pays their bills on time and does not spend more than what they are capable. Many times people will even defraud credit card companies. This also affects responsible consumers.
In all, Congress should be careful as too how they regulate credit card issuers. The country can not afford to loose any more consumer liquidity. Consumer spending has sharply fallen this year. There are many economists who argue that the only way to get out of this recession is for people to spend money. The lack of consumer spending in our economy will only cause more companies to fail. The country has already lost somewhere in the neighborhood of 300,000 to 400,000 jobs in the month of November. Further job loss will very likely occur should consumer spending continue to be curtailed. The loss of $2 trillion in credit card liquidity will certainly affect spending in a very negative way.
Congress is working at passing new legislation that will restrict credit card companies lending practices. This comes after thousands of people have complained to the Federal Reserve’s website that credit card companies are not abiding to lending rules that are fair to consumers. There are arguments from both sides of the spectrum that seem justifiable. However, it will be up to Congress to come up with a solution that is viable for everyone.
The consumer argument is that credit card companies are being extremely unfair in their lending practices. For example, credit card companies are quick to raise your interest rates when you are delinquent with your payments. Many card issuers will even raise your rates if you are one day late. In addition, credit card companies are also raising interest rates on people with outstanding balances. This makes it harder for people to pay off their debt. The major complaint is that credit card companies are too quick to raise rates and very unforgiving of their clients.
The credit card issuers argue that restricting their ability to raise rates undermines their ability to manage risk. The further regulation of credit card issuers could also affect consumers adversely as well. Should card issuers be required to adhere to much stricter guidelines, they may get even stricter and contract credit even more. It is already rumored that credit card issuers may cut up to $2 trillion in existing consumer lines of credit. This would greatly affect the American consumers’ liquidity. Credit cards are the consumer’s second largest source of spending power next to their paychecks. The reduction of credit card lines of credit will further hurt the economy. Every sector of the economy will be affected should consumers loose $2 trillion in spending power.
Credit card issuers are urging Congress not to take any action until this recession is over. However, consumers want the government to take action quickly to keep unfair credit card practices from further unraveling. Consumers want card issuers to give them at least 30 days to make a late payment, however, card issuers claim this is too much time. The problem is that there are too many households with excessive credit card debt. Many people abuse their credit cards and often times do not have any intentions of paying their bill responsibly. This adversely affects the large majorities that pays their bills on time and does not spend more than what they are capable. Many times people will even defraud credit card companies. This also affects responsible consumers.
In all, Congress should be careful as too how they regulate credit card issuers. The country can not afford to loose any more consumer liquidity. Consumer spending has sharply fallen this year. There are many economists who argue that the only way to get out of this recession is for people to spend money. The lack of consumer spending in our economy will only cause more companies to fail. The country has already lost somewhere in the neighborhood of 300,000 to 400,000 jobs in the month of November. Further job loss will very likely occur should consumer spending continue to be curtailed. The loss of $2 trillion in credit card liquidity will certainly affect spending in a very negative way.
Labels: consumer spending, credit card, credit card issuers, credit card lines of credit, credit cards
Credit Card / Financial news blog post by Todd Holliday at 8:30 PM 