The Credit Card Act has been in place for over two years now and we are now starting to see some of the effects of passing this into law. There have been both positive and negative consequences taking place since this legislation. On the plus side, the industry has become a bit more transparent with the credit terms being clearer and easier for people to understand, but the negatives have been substantial. Here are some of the negative effects taking place.

Rising Interest Rates
That fact that interest rates have jumped roughly 2% since 2009 is, in part due to the loss of profits the credit card issuers have taken. Many are speculating that credit card providers are making up the lost profits once obtained through fees and penalties by raising the interest rates. While some of the loss is clearly from the limited ability to impose fees and penalties (due to the Credit Card Act), one must also take into account the depressed economy when attempting to pinpoint a reason for the loss in profits and follow up rise in interest rates.

New Fee Strategies
In order to regain lost revenues credit issuers are becoming more creative in the way they impose fees. They must come up with strategies that work around the new legislation. A few things you will see, include the rebirth of the annual credit card fee, inactivity fees, and minimum finance charges and foreign transaction fees just to name a few. In time, we will see which of these revenue-building methods survive long-term and which ones fizzle out quickly.

Non-Working Spouses
The rules applied to non-working spouses applying for credit are changing. In the past, the non-working spouse could apply for credit based on the household income. With the new rules, each person applying for credit must use their own income when filing an application. If you have no income, it will be almost impossible to obtain a credit line, regardless of how much income the working spouse may bring in. This will be especially difficult for stay-at-home moms, widows and recently divorced individuals who have no “job’ to establish a credit line or credit history.

The Credit Card Act was suppose to help consumers avoid bankruptcy by forcing credit companies to provide educational information about individuals accounts. For example, they provide the amount one would be paying in the end and how long it would take to payoff if they only made minimum payments. This information was meant to encourage consumers to make positive steps to avoid the pitfalls of increasing debt, but instead it seems to have had the opposite effect and overwhelmed consumers. Rather than fight to fix the debt, more people gave up the fight and instead chosen bankruptcy. The numbers speak volumes. There has been a 300% increase in bankruptcy cases since 2006. Personal bankruptcy has risen 9% from 2009 to 2010 with 1.5 billion bankruptcy cases filed in 2010 alone.

Short Term - Long Term
The short-term effects of this Act seem to be filled with negative consequences; increase in rates, fees and larger number bankruptcies. While no one wants these negative to be in our society, it is still too early to know if the decision to implement this Act was a good one. The long-term benefits will be seen in the generations to come and individuals who have not built up large sums of debt. The clear understanding about where ones debt is at and how it will effect them long-term should really be helpful in preventing bankruptcies down the road. Theoretically it should help establish better credit scores’, better credit history and less overall debt that will serve to help everyone over the course of time… at least that’s the idea.

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