The recent slew of credit card legislation in the US is
being watched eagerly by UK regulators keen to position themselves
as consumer champions. In this month’s guest article, Paul Rodford,
head of policy at The UK Cards Association, puts the case that UK
regulators must not rush blindly to implement similar

On 22 May, President Obama signed the US Credit Card
Accountability, Responsibility and Disclosure (CARD) Act into law.
Feedback from the US so far, as issuers digest the full
ramifications of the Act, is that it is certain to reduce the
availability of credit card credit, reduce customer choice and put
up the price of credit. US legislators’ opinion of the likely
impact on consumers and the wider economy varies, but the impact
could easily be underestimated if it is hoped consumer confidence
and consumer spend will lead the economy out of recession. While
legislators may not yet be convinced that the availability of
credit will be reduced, the impression given is that, were this the
case, it would not necessarily be seen as a bad thing.

Naturally, UK legislators have been avidly following US
developments and are keen to consider those parts of the Act that,
on the face of it, may be relevant to the UK and appear to
strengthen or fill gaps in the current UK regime. However, the UK
industry believes strongly that the two markets have evolved
differently over time and can not be directly compared – it is not
simply a question of importing the most popular sounding provisions
into the UK. To these ends, the industry has already been, and will
continue to be, in active dialogue with the government on the CARD

We want to make sure that, on this side of the pond, the big
picture gets reviewed alongside the detail, because rushing to
introduce the US legislation into the UK, without looking carefully
at the UK’s situation, will inevitably adversely affect UK

UK regulatory developments

The fact is that the UK is well ahead of the US in terms of
transparency, responsible lending and treating customers fairly –
whether that has been the result of formal regulation or the
rigorous action taken by the industry to present the facts about
credit cards and how they work. Anyone familiar with the recent
history of the UK credit card industry will know how it has
responded positively to escalating political and regulatory
interest, beginning with the Treasury Select Committee hearings in
2003/2004; recent revisions of the Consumer Credit Act and the
Consumer Credit Directive; regulatory intervention on default fees,
payment protection insurance (PPI) and interchange; and more
recently, last November’s Credit Card Summit.

The CARD Act is the clearest sign yet that the US is catching up –
it is the first US legislation to regulate credit cards in a

The CARD Act places tight regulation around US card issuers’
practices. The legislation is potentially explosive for the US
industry, pursuing an apparently popular consumerist agenda that
will dramatically reshape the US market. Despite the speed with
which it was developed, the Act is, without doubt, a technically
complex piece of legislation addressing a broad spectrum of issues
including risk-based re-pricing; the allocation of payments;
over-limit fees; penalty fees; marketing to students and to the
subprime market; as well as best practice on statements. US issuers
have nine months to comply with the new legislation which, for
many, goes to the core of their business model.

Two very different markets

Some of the key differences that make comparison of the two markets
difficult and which would result in different impacts

• The underlying legal and self-regulatory regimes are different –
for example, the UK has had layer upon layer of formal regulation
since 1974, plus we have The Banking Code and the Financial
Ombudsman Service;

• Some of the features addressed in the CARD Act are not features
of the UK market, such as universal default or applying a charge
depending on the payment method used to pay a bill;

• There are some important philosophical differences. For

° Credit card companies in the UK can only use default fees to
recover the actual costs they incur whereas in the US, the word
‘penalty’ means what it says, with fees talked about as a deterrent
and in terms of their impact on consumer behaviour;

° On risk-based re-pricing the CARD Act allows issuers to re-price
an account if the customer is 60 days in arrears whereas principles
on risk-based re-pricing agreed in the UK, following last
November’s Credit Card Summit with the government, expressly state
that a UK issuer will not re-price in such circumstances. This was
a lynchpin of the UK agreement seen as being firmly in the
interests of the customer;

• The history of intervention is different – in the UK, the
European Commission, the Office of Fair Trading and the Competition
Commission have all recently exercised their powers – impacting all
the major revenue streams for UK card issuers and rendering the
business model for a UK issuer fundamentally different to that of a
US issuer; and

• There are key differences in the way the industries operates,
such as the availability and use of credit reference data,
transaction authorisation levels and the way APRs are calculated –
all of which underpin the CARD Act to some extent.

Unintended consequences

We always need to be wary of crying wolf and as yet we cannot
assess the impact of the individual provisions in the CARD Act,
never mind their compound impact. The unresolved question is
whether the CARD Act will result in unintended or detrimental
consequences for consumers, such as the withdrawal of promotional
rates (a real possibility given the provisions on payment
allocation). Neither do we know who consumers will hold responsible
once credit card credit in the US becomes a rarer, more expensive,

The US government has effectively embarked on a live experiment
with their credit card industry, redesigning the business through
regulation. But no-one really knows yet what the impact will be.
The prudent thing to do is not to rush and cherry-pick
superficially attractive provisions, but to wait and see what
happens next. Whatever the outcome, it is unlikely to be pretty
from a card issuer’s point of view; and in the end most
importantly, that affects the attractive deals offered to