Final Changes Restricting Credit Cards will have Lingering Impact on ARM

The rules of the game governing credit cards are changing yet again, as the final provisions of federal legislation involving credit card interest rates and fees went into effect yesterday. The big buzz this is creating is centered on credit card interest rates reaching a nine-year high, expected to go up even further in light of these new restrictions.

What impact will this have on credit, collection and debt buying professionals focused on credit card collections?

1. Expect further delinquency and charge-off volume increases.  Issuers are already dealing with credit card delinquencies at historically high levels.  Now banks can no longer quickly adjust rates or assess penalty fees to combat delinquencies so volumes may increase.

2. Average account balances will also increase.  The unemployment rate remains steady at 9.5% and while it has not increased, it has not gone down as hoped in spite of government stimulus efforts.   Consumers can avoid unexpected rate increases and pay off existing balances over time which means less balance transfers and increased credit card spending for those who use credit cards as a primary form of payment.

3. Originations will likely remain flat or decline further as issuers continue to tighten their lending policies even further in response to the new legislative requirements and consumers are less motivated to receive new credit card accounts with higher interest rates. 

I have practiced a philosophy of trying to avoid surprises in my own life by staying abreast of changes.  I am a proponent of consumers knowing up front the costs involved rather than being surprised on the back end with increased rates and fees because they did not read the small print or fully understand the terms in the first place.  As professionals in the credit and collection industry, it is critical that we all stay abreast of changes that may directly impact our business in the short term and potentially for years to come.  What changes are you anticipating in your own business and the competitive landscape as a result of the restrictions being placed on credit card issuers this year?