As the US economic downturn bites, more
and more consumers are paying attention to the way the credit card
industry is regulated. According to a recent survey, many are now
clamouring for greater government intervention, at a time when
issuers are already under intense scrutiny, as Charles
Davis
reports.

Beset by a host of economic woes, US issuers must now add the
looming threat of more regulation to their list of worries.
CreditCards.com’s Taking Charge survey an in-depth
investigation of America’s relationship with credit cards, found 73
percent of Americans want the government to regulate the credit
card industry more closely; and 58 percent of Americans expressed a
distrust of credit card companies.

While most consumers (78 percent) acknowledge many people make
little attempt to understand the credit card information they have
and do not read the terms of their credit card offers, it does not
cool their desire for greater state intervention.

The second annual Taking Charge survey is a snapshot of
a consumer public in the middle of crisis, and testament to the
difficulties facing issuers where regulation is concerned. The
national study was fielded by GfK Roper Public Affairs & Media
for CreditCards.com, the leading online credit card marketplace and
consumer information source.

Increasing public hostility

“The Taking Charge results illustrate the public’s
hostility towards the credit card industry,” said Ben Woolsey,
director of marketing and consumer research for CreditCards.com.
“Amid the hostility, however, 82 percent of Americans still say
credit cards provide a valuable service and are essential to have
today.”

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According to Woolsey, the negative effects of underwriting
standards in recent years have cast a spotlight on the
responsibilities that credit lenders have to their borrowers.
Though legislation like the Credit Cardholder’s Bill of Rights
continues to advance in Congress, the bill might signal the
beginning of a series of regulatory and legislative action in the
new administration.

The Bill the House passed this year would prohibit raising rates
on existing card debt except when a consumer pays a bill 30 days or
more late, a promotional rate expires, or an index tied to the rate
increases.

The Bill also would ban double-cycle billing, restrict fees, and
bar minors from obtaining cards. The Senate is not expected to take
up the Bill this year, but the Federal Reserve Board has proposed
similar reforms.

The Taking Charge survey also showed that while 82
percent of Americans somewhat agree or strongly agree that credit
cards provide a valuable service, 76 percent feel there is always a
‘catch’ that makes a credit card less attractive than the credit
card company makes it sound.

Industry faces greater scrutiny

The finding that nearly three in four Americans favour more
regulation comes in a year of intense congressional scrutiny of the
credit card industry, record consumer complaints and an
unprecedented proposal by federal banking regulators to establish
consumer protections against “unfair or deceptive” practices.

The Federal Reserve Board has proposed banning “surprise”
interest rate hikes, limiting fees and giving consumers a
reasonable time to pay their monthly credit card bills. Banking
industry representatives have called the proposals an intrusion on
competition that would lead to higher interest rates and fewer
people receiving credit cards. The Fed has said it will finalise
the proposed new rules by year’s end.

“The outrage has just been building. It is something that is
finally coming to a head now,” says Linda Sherry, national
priorities director for Consumer Action, a San Francisco-based
non-profit advocacy coalition.

Sherry says she was surprised that 58 percent of poll
respondents said they didn’t trust credit card companies. She
expected the figure to be higher.

“We are just completely inundated by complaints about the credit
card companies,” Sherry says.

One in three consumers contacting her agency for help has credit
and finance-related problems.

For nearly four years, the Fed has been working on beefing up
disclosure requirements for credit card applications, solicitations
and monthly statements. Regulation Z disclosure requirements are
widely expected to be finalised by the end of the year.

The survey also took a look at US cardholder behaviour, and
found consumers are adapting to a changed economic landscape by
cutting back on their credit card spending, attempting to pay down
debt and monitoring interest rates.

Taken as a whole, the poll shows most consumers are reacting
reasonably to financial difficulties by pulling back on
discretionary spending, and express little concern about their
ability to pay down debt. But those who can’t or won’t adjust are
finding themselves in deeper and deeper debt trouble. To put it in
Darwinian terms, consumers must adapt or they simply won’t
financially survive.

“As the use of plastic becomes more prevalent in American daily
life, consumers who implement healthy credit card habits will be
more apt to financially survive in a cashless society,” said
Woolsey.

Consumers adapt to changing landscape

Consumers appear to be taking proactive steps to avoid the
credit crunch in their credit card affairs, with 25 percent of US
cardholders saying they spent less on household living expenses
last month, while 33 percent reported that they ended the previous
month with a lower outstanding balance than the month before.

Consumers are decreasing their discretionary spending, as 34
percent of respondents said they spent less on things such as
eating out or shopping at the mall; 46 percent say they spent less
on major purchases, such as appliances or furniture.

Consumers are also hunting for low interest rates. Nearly 4 in
10 surveyed agreed that they are always looking for low interest
rates to transfer their existing balances, while 67 percent of
cardholders agree that they “actively monitor” the interest rates
on their credit cards.

Despite all the bad economic news of the past year, American
cardholders are no more worried than last year about paying their
credit card bills, with 27 percent agreeing with the statement: “At
times I worry about how I am going to pay my credit cards.”

That figure is unchanged from last year’s poll.