December 9, 2008
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News: Industry Concerns on CC Reform.
One of the greater concerns the credit card industry is voicing is the ‘locking in' of existing debt rates. What this means is that any new rate hike can only be applied to charges that take place after the time the hike goes into effect. Any balance which was in place before the rate hike goes into effect is exempt from this new hike. These new regulations do make allowances for exceptional cases like delinquencies. But, even these details are in contention. The proposal institutes an extension of time for delinquency classifications to be 30 days after payment due date. The credit card industry holds that 30 days out is far too long. The Federal Office of the Comptroller of the Currency seems to agree. This agency is the primary federal regulator of national banks. It accounts for almost 80 percent of U.S. credit card lending.
The constraint that is unacceptable to the credit card industry is that this extension would take away the creditor's ability to respond quick enough to adverse changes in a borrower's risk characteristics when an account starts to go in arrears. They need enough early warning to act on these situations and it must be well ahead of the next credit card billing cycle. Right now the guideline is five days after payment due date. The ‘delinquent' classification, they say, must be established in time to adjust changes in the upcoming periodic cycle and before the new statement is issued. The legislators are trying to fix the problem of there being too little time, the way it is now. They must find the best balance.
Getting back to raising rates on pre-existing debt, the credit card industry contends that millions of credit card accounts have been adjusted to lower interest levels based on the security that they may be raised, if necessary. To make across-the-board changes would require ‘re-pricing' and revamping millions of existing accounts to protest industry from being overly risk-exposed, which could lead to more serious consequences. The government's viewpoint is that people who are already deeply in debt need a better payment plan more than they need to be put further in the hole.
As far as passage, Congress is on fire to get this done without major modification. The House has already passed its version by a 312-112 vote back in September. Congress is sending the serious message that significant weakening of the regulations or excessive delays will be met with overrides.