Aug 5, 2009 3 Comments
Before, consumers with relatively good credit standing can expect to receive credit cards on their mail box. It has even become a nuisance for some. However, after years of doing this practice, financing companies are suddenly getting picky. Not only are they not giving out credit cards through mail anymore, they have also tightened their requirements by asking applicants for proof of their income (pay stubs, etc). And these consumers need to deal with high interest rates, more fees, and lower credit limit.
This reaction is really not surprising because banks typically tighten credit during an economic crisis. But what makes today’s development unique is that credit card companies also need to comply with the Credit Card Act of 2009. The new policy bans certain banking practices, limits fluctuating rates, and gives consumers earlier and more detailed information about their debt.
Though credit card companies have until February 2010 to implement all provisions stated in the law, a lot of them are now tightening things up before too many of the restrictions become legally effective. In addition certain provisions have earlier deadlines. For example, issuers now need to mail bills at least 21 days before the due date this August. In addition, they also need to allow at least 45 days notice before they implement any significant change regarding their terms of service.
Specific steps undertaken by credit card companies include:
-Credit standards are tightened – more applications are getting rejected. Those that get approved have smaller credit lines.
-Interest rates and fees are raised. From fixed rate, credit card companies are moving to variable rates.
-Rewards programs are enhanced for credit-worthy consumers but companies are asking for higher fees as well.
The industry is scrambling to find the new profitable segment. This is because without the flexibility to charge customers based on the risk they pose, the old calculations will no longer apply.