Friday, May 22, 2009
Risky borrowers usually are a cash cow for credit-card issuers, thanks to hefty fees and interest rates. But some of that revenue will dry up after President Obama signs new credit-card legislation Friday.For many young people, this will mean less credit (credit scores depend in part on credit history.) The students in my money and banking class, where we read about this issue yesterday, were very split on the issue. Many think people should just have to save for their expenditures, or pay cash. Others felt it was an undue burden -- banks and customers are quite willing to accept the terms and conditions of subprime credit cards, so why should government interfere. It was an interesting discussion.
...The law will restrict some fees, limit certain interest-rate increases and require companies to provide more disclosure to customers. It is yet another headache for the credit-card industry, already battered by rising delinquencies and defaults because of the recession.
...Credit-card companies are trying to decide how to recalibrate their portfolios to reflect the coming changes. Industry executives say that credit is likely to become less available, particularly to risky borrowers, and more fees likely will be loaded into the front end of the account, rather than being assessed after a customer falls behind on payments.