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Wan LixinOpinion deputy editor of Shanghai Daily
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Obama signs bill to reshape American credit card industry
Source: Agencies |
May 24, 2009, Sunday
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Print Edition
Print Edition
United States President Barack Obama has signed into law sweeping reforms that restrict credit card interest rates and fees, marking a victory for Democrats trying to help recession-weary consumers and a setback for banks seeking to retain sorely-needed revenues.
The law is expected to hurt profits of major card issuers such as Citigroup Inc, Bank of America Corp, JPMorgan Chase & Co and Capital One Financial Corp.
Banks say the changes may cut the flow of credit to consumers because it will make it more difficult for issuers to set rates based on the risk their customers pose.
"With this bill we are putting in place some common sense reforms designed to protect consumers," Obama said at a signing ceremony on Friday at the White House.
"We're not going to be giving people a free pass and we expect consumers to live within their means and pay what they owe. But we also expect financial institutions to act with the same sense of responsibility that the American people aspire to in their own lives," he said.
Enactment marks the crest of a backlash against the card industry after years of rate and fee hikes and aggressive marketing programs that have angered consumers, analysts said.
The law largely codifies a set of rules issued by the Federal Reserve last year and puts them into effect in February 2010, five months sooner than the Fed had planned.
It also represents the first major financial regulation reform completed by Obama as he tackles a rewrite of the rules of banking and the markets to better protect consumers and investors, and prevent another credit crisis.
The American Bankers Association, which represents the biggest credit card issuers, said the law will transform the credit card industry.
"It will be a very different product, a lot simpler product which is what people want," ABA President Ed Yingling said. "It does change the economics. It's now a longer-term loan, it's not a short-term loan any more."
The industry could potentially lose about US$15 billion in penalty fees each year, according to White House estimates. Americans owed more than US$945 billion in credit card debt in March.
The amount has fallen during the recession but credit card indebtedness is still about 25 percent higher than a decade ago.
The law is expected to hurt profits of major card issuers such as Citigroup Inc, Bank of America Corp, JPMorgan Chase & Co and Capital One Financial Corp.
Banks say the changes may cut the flow of credit to consumers because it will make it more difficult for issuers to set rates based on the risk their customers pose.
"With this bill we are putting in place some common sense reforms designed to protect consumers," Obama said at a signing ceremony on Friday at the White House.
"We're not going to be giving people a free pass and we expect consumers to live within their means and pay what they owe. But we also expect financial institutions to act with the same sense of responsibility that the American people aspire to in their own lives," he said.
Enactment marks the crest of a backlash against the card industry after years of rate and fee hikes and aggressive marketing programs that have angered consumers, analysts said.
The law largely codifies a set of rules issued by the Federal Reserve last year and puts them into effect in February 2010, five months sooner than the Fed had planned.
It also represents the first major financial regulation reform completed by Obama as he tackles a rewrite of the rules of banking and the markets to better protect consumers and investors, and prevent another credit crisis.
The American Bankers Association, which represents the biggest credit card issuers, said the law will transform the credit card industry.
"It will be a very different product, a lot simpler product which is what people want," ABA President Ed Yingling said. "It does change the economics. It's now a longer-term loan, it's not a short-term loan any more."
The industry could potentially lose about US$15 billion in penalty fees each year, according to White House estimates. Americans owed more than US$945 billion in credit card debt in March.
The amount has fallen during the recession but credit card indebtedness is still about 25 percent higher than a decade ago.
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