Credit card issuers continue to squeeze consumers

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In many cases, the majority of credit card issuers have or will continue to tighten standards, making credit cards more expensive and harder to get, according to the Federal Reserve.

Over the past three months, the percentage of credit card issuers tightening standards was down from peak periods earlier this year and last, but only because many issuers have already tightened standards, according to the Federal Reserve's latest survey of 57 domestic banks and 23 U.S. branches and agencies of foreign banks, the "October 2009 Senior Loan Officer Opinion Survey on Bank Lending Practices".

Credit card issuers began taking consumers to the cleaners before and after May 22 this year when President Barack Obama signed the Credit Card Accountability, Responsibility and Disclosure Act or "Credit CARD Act" into law.

Some CARD Act provisions took effect this year, but others won't be enforced until 2010.

The October Senior Loan Officer Survey said, of the banks that issue credit cards, 75 percent fully don't expect to be compliant with the provisions of the legislation until February 2010, when most of the provisions will go into effect.

In the interim, credit card issuers have been taking the opportunity to squeeze consumers with jacked-up interest rates, overdraft fee gouging, slashed credit limits and other questionable tactics the new law is designed to curtail.

To speed up the effective dates of the Credit CARD Act, new legislation is making its way through Congress now.

"As a result of consumers voicing their frustration, there's serious discussion in Washington to accelerate the effective date of the credit card reform legislation," said Nancy Osborne chief operating officer of Erate.com, a Santa Clara, CA-based financial information publisher and interest rate tracker.

The regulatory reform, even before regulations are in place, is an unusual legislative attempt to beat back financial institutions attempting to wring consumers dry.

Separate federal rules are ahead to stop overdraft fee gouging.

Consumers aren't waiting for politicians to save them.

One in 3 (32 percent) consumers, fuming over tighter standards, either paid off or closed their credit card account since January 2008, according to a Consumer Reports survey.

Others are using plastic less, which isn't a bad thing, given the high cost of credit card use.

"The level of public anger about card issuers shows in the results of our nationally representative survey of 1,211 Americans, conducted in July, as well as in scores of irate letters and e-mails we've received," reported Consumer Reports in its November 2009 issue.

The Senior Loan Officer Survey said, on net, only 15 percent of banks reported tightening standards for credit card loans to individuals or households in the past three months, down from the 35 percent in the previous survey and the smallest net percentage reported since April 2008.

However, when credit card issuers were asked about past or future tightening of specific terms and conditions, in response to the Credit Card Act, the percentages were much higher for both prime borrowers -- those with the best credit scores -- and non-prime borrowers alike.

The survey does not name the credit card issuers.

According to the loan officer survey:

For prime borrowers:

• Fifty percent of lenders said they have or expected to increase interest rate spreads and reduce credit limits.
• Forty-five percent of banks expected to raise minimum required credit scores.
• Forty percent expected to raise annual fees.

For non-prime borrowers:

• Seventy-five percent of banks expected to increase interest rate spreads
• Sixty percent expected to reduce credit limits.
• Fifty-five percent expected to raise minimum required credit scores.
• Forty-five percent have or plan to raise annual fees.

Also:

• Thirty-five percent of banks expected to increase the use of risk-based pricing.
• Thirty percent expected to increase the use of more costly variable interest rates and decrease the use of fixed interest rates.

"Many banks have been slowing switching their cardholders' accounts from fixed rates into variable rates ahead of the new reforms, effectively shifting the interest rate risk away from the bank and onto the consumer, rendering the reforms somewhat less effective," Osborne added.