December 9, 2008
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News: Industry Speaks out on Credit-card Reform.
The credit card industry is concerned that some of the new government regulations will cripple its ability to manage risk. If this happens, the larger credit card lenders may be forced to raise interest rates across the land. This would serve to reduce available credit to a nation that relies on credit cards so heavily. They contend that some of these new rules would stifle badly-needed credit and stunt our economy even further.
Some of the detrimental unintended consequences could lead to a reduction of consumer credit by as much as 40 percent of our nations unused credit card lines. That figure may reach $2 trillion of credit that consumers would lose. Economically this would have an effective ‘pay cut' in consumer's ability to buy and the loss of liquidity from credit cards would erode the retail industry. This could exacerbate the already tenuous position of the retail industry, causing much greater job loss as a result.
Even so, it is expected that the Fed will move forward aggressively. Details haven't been made public yet so we may have to wait and see what happens. Apparently, they're still being finalized. What we're dealing with is unprecedented and may enjoy a smooth transition or may cause upheaval. Certainly, we hope for the best. Everyone knows how important liquidity is to our fragile economy so people are naturally a little nervous when tampering with vitals, like credit card liquidity. We'll soon find out but, hopefully, the changes will have only a good effect.
Note that this is not doomsday or anything like it. Even after the plan has been finalized and everyone knows the details, another six months may pass before full implementation and compliance will be required. So getting things going quickly is probably a good thing. Certainly, ten's of thousands of consumers will appreciate the hope of protection. As one might expect, the credit card industry would rather these changes wait until the recession is over. But hose legislating the changes well understand that the greatest need for these changes is now.