Credit Card Bill Unlikely to Dent Bankers’ Prospects

The Credit Card Bill of Rights Act (H.R. 5244), introduced by Representative Carolyn Maloney, D-N.Y., seeks to limit credit card companies’ ability to impose arbitrary interest rates and unreasonable fees. The legislation aims to help consumers, but it may do just the opposite.

Credit card companies may respond by tightening their issuing standards and changing the programs they offer in order to maintain revenue. Eli Lehrer, a senior fellow for the Competitive Enterprise Institute, says it would be a real disaster for consumers, because it would make it impossible and unattractive for credit card companies to issue cards. The law’s effects on credit card companies’ revenue would however be minimal.

“I’m skeptical that there is that much of an effect on credit card companies’ finances. They can always eliminate rewards programs, and charge higher interest rates and fees to good customers,” Lehrer says.

Credit card companies will be much stricter about issuing cards, Lehrer adds. Customers who have a good credit rating will be worse off because they may be subject to higher interest rates and fees.

Gregory Elliehausen, a spokesman for the Federal Reserve, says that if credit card companies end up issuing cards to customers with high FICO scores, good borrowers may find themselves cut off from credit.

Elliehausen says the new legislation will do nothing to eliminate credit card companies’ ability to alter fees and interest rates; instead it will force the card companies to adjust their programs in order to maintain the same level of revenue. “Credit card companies would have to greatly reduce the number of accounts that they view as delinquent. They would only be accepting borrowers with little-to-no-risk,” Elliehausen says.

“Card holders will either charge a lot and pay on time, or charge a lot and not pay on time; either way credit card companies will make money,” says Lehrer.