September 1, 2010
August brought the phase-in of the last new credit card regulations under the Credit Card Accountability, Responsibility and Disclosure Act, also known as the Credit CARD Act, which was passed by Congress and signed by President Obama more than a year ago. Among other things, the new rules ban credit card companies from charging fees that are larger than the infraction: If you miss a $20 payment, the maximum penalty is $20. Thus, the finishing touches are on a revamped credit card regulatory structure that will also require issuers to apply any payment over the minimum due to the highest interest portion of a customer's debt and make it harder for companies to market plastic to students under 21. Between 1989 and 2006, total credit card charges increased from $69 billion a year to more than $1.8 trillion. But now, those go-go days are over.
Critics call the CARD Act a nanny-state infringement on economic freedom whose negative impact on the economy has only begun to be felt. If credit card issuers can't recoup the costs of extending credit to more marginal card users, they will have no choice but to raise interest rates on everyone else. And, sure enough, the average rate on credit card debt has risen to 14.7 percent -- a post-2001 high -- when other interest rates, such as the 30-year home mortgage rate, are falling. No wonder consumer spending is sluggish. It's another made-in-Washington setback for the recovery.