Starting today, the Credit CARD Act is in effect.
Congress passed the Credit Card Accountability, Responsibility, and Disclosure Act to protect consumers from rapid interest rate increases and penalties.
Unfortunately, credit card processing companies and issuers have already begun to lose billions in revenue due of the economic downturn. This could worsen because of the new rules imposed on credit card processing companies and efforts to boost income will most likely be at the expense of consumers.
Below is a list of the top predictions for the credit card industry for 2010.
1. More credit card processing companies are expected to have annual fees. Approximately 20% of credit card processing companies and issuers have annual fees and with the latest bill passed by Congress, this number is most likely to rise in efforts to increase revenue. Additionally, merchants and banks have introduced new cards that have annual fees while some credit card companies are already testing annual fees on their existing cards.
2. Increased interest rates and fees will still occur despite the Credit CARD Act. Credit card issuers will continuously find loopholes and reasons to increase rates regardless of the reform bill. Existing fees such as balance transfer and cash advance fees will also increase because the CARD Act doesn’t limit fees. Certain MSP’s such as U.S. Bankcard Services, Inc. offers great deals on cash advance fees that are fast, convenient, and require no personal guarantees or collateral.
3. Credit card processing companies and issuers will create opportunities to raise rates through means such as inactivity fees or processing fees for certain requests. Some banks require that cardholders spend a certain amount; otherwise they are required to pay a fee. While other merchants may charge cardholders if their cards are unused for a certain period.
4. Fixed-rate credit cards will start to rise and fall with the prime rate, which is currently at its lowest at the rate of 3.25%. The shift to variable rates by credit card processing companies and merchants will be felt by consumers when the economy starts to pick up as these rates will definitely increase.
5. Rewards will likely be reduced for some cardholders, especially for those not subject to pay annual fees and pay off monthly balances. Rewards may be smaller pay-outs for cash-back cards, higher point thresholds, or for cardholders to accept credit cards with annual fees.
6. Expect more government regulation because some legislators think that the CARD Act is not enough. This regulation may come in the form of regulating the interchange rates between credit card processing companies and merchants, which consumers will most likely to make up for due to the reduction of an important source of revenues for merchants and bankcard processing companies.