The credit card industry has had a bit of a PR problem lately, to say the least. And the controversy over practices by credit card companies is only escalating as the months tick down to the February 2010 compliance date for most provisions of the Credit CARD Act that President Obama signed into law last May.
Card issuers are locking horns with their customers, consumer advocacy groups, and lawmakers as they make more adjustments to account terms and conditions prior to the effective date of the law that will severely limit their ability to make changes in the future. But how much are the credit card companies alienating good customers and angering legislators further by doing what they can to adjust to the new economic realities of their business?
For months, the banks have been busy raising interest rates and fees, reducing credit limits, and increasing monthly payments, claiming that the actions are necessary for them to be profitable when losses have increased, and the new regulations will restrict their ability to price accounts appropriately for risk.
Consumers aren’t taking these changes lying down, though. They are using social media tools such as blogs, Facebook, and Twitter to share their stories of banks making major changes to their card accounts. And consumer advocacy web sites such as ConsumerAffairs.com provide forums for consumers to air their grievances. Angry cardholders have posted online rants about closing their accounts and pledging to never do business again with banks that have boosted the interest rate on cards that are in perfectly good standing.
Some legislators, meanwhile, aren’t content to sit back and wait for the new rules to go into effect. A group of 18 lawmakers sent a letter to major credit card issuers asking them to freeze their interest rates until the new law kicks in. Some card issuers— including Bank of America, Capital One, and Discover—have agreed. Additionally, Representatives Barney Frank and Carolyn Maloney introduced a bill that would move up the compliance date for the new credit card regulations by nearly three months, to December 1.
Even when the new consumer protection law does go into effect, the card industry has other battles on the horizon. Lawmakers have proposed to limit interchange fees that the card industry charges merchants for transactions and that are shared by issuers, networks, and payment processors.
As regulators and politicians seek to protect consumers from abusive practices, and card issuers claim that the crackdown will hinder economic recovery by reducing the availability of consumer credit, the debate over what is fair for both consumers and banks will undoubtedly continue.
Just as issuers must adjust to the new economic and regulatory environment, so must consumers. For the foreseeable future, credit simply won’t be as cheap or plentiful as it has been for the last several years. But, with the voice of consumers as loud and powerful as ever, thanks to online social media, banks must carefully consider the potential damage to their brands when taking action to manage their risk and protect their profitability, especially with their existing customers.
-Stephen Clifford, Senior Analyst