The Fed decided to expand the CARD Act’s limit on fees charged to credit card holders during the first year of an account to include fees charged before the account was opened, and the banks used to halt enforcement by the Consumer Financial Protection Bureau. And so far, the banks are winning.
As Consumer Law & Policy Blog’s Brian Wolfman points out, “This decision may be the first addressing the validity of a rule enforced by the CFPB. No doubt there will be many more, as the banks try to extricate themselves from as many CFPB regs as possible.”
On December 18, the Federal Reserve Board released new regulations for credit card issuers. The substance of the regulations is great – in some ways it’s even stronger than what was proposed (more on this below). But the ridiculous problem with the Fed’s announcement is that, for some reason, the rules won’t go into effect until July 1, 2010. That’s eighteen months from when the regs came out in December.
Eighteen months is a long time! In eighteen months people can get into and out of all sorts of shenanigans, financial, and otherwise. And given the direction the economy is heading, doesn’t it seem like now would be a better moment to enact these long-overdue consumer protections, and keep more money in consumers’ hands?
Of course, banks do need some amount of time to conform their procedures to the new rules. But this really shouldn’t take longer than three months. After all, the industry is miraculously efficient when adopting new procedures that they stand to profit from. Why on earth do they need eighteen months in this case?
Even though the interest rates banks pay are dropping, credit card interest rates are holding steady. Joseph Ridout of Consumer Action thinks the banks are trying to make up for their losses on subprime mortgages.
At the same time, banks are cracking down on existing customers by raising rates, dropping limits, and taking other draconian measures.
But if banks keep squeezing consumers with high credit card interest rates, they will see default rates skyrocket as people stop making payments they cannot afford, sending the credit card market down the drain right behind the subprime market.
“[T]he Fed seems to be knocking down every firewall that exists in banking regulation in an effort to stanch the current crisis. The danger, of course, is that by demolishing prudential firewalls, the crisis could grow even bigger.” Relaxation of Regulatory Capital Rules | Credit Slips
It’s official, the U.S. taxpayer is now buying bad debt by the billion. The Fed just decided to give insurance giant AIG an $85 billion loan to keep it solvent. Can governments declare bankruptcy?
U.S. Plans Rescue of AIG to Halt Crisis; Central Banks Inject Cash as Credit Dries Up | Wall Street Journal