Credit card protections come with some holes
— -- President Obama is expected to sign legislation this week to clamp down on credit card practices, a welcome move at a time when more consumers are losing their jobs and struggling to pay their bills.
The law, which the House of Representatives passed and sent to Obama on Wednesday, will impose far-reaching restrictions on everything from interest rate increases — which have become common even though interest rates in general have fallen — to when and how issuers impose over-limit and late fees.
But experts say it doesn't go far enough in tackling some of the practices that have mired consumers in a never-ending cycle of debt.
"I'm torn because the legislation has its heart in the right place," says Adam Levitin, Georgetown University law professor. The problem is, "It just doesn't address the hydraulic nature of the market. If you block one avenue, the market's going to circumvent it."
Levitin expects issuers to roll out new fees and practices in upcoming years to replace those banned.
Issuers say they may have to raise the upfront cost of credit cards and pare back rewards programs amid the new restrictions.
Ed Yingling, chief executive of the American Bankers Association, said in a statement this week that the restrictions will change credit cards from a "short-term line of credit to a medium-term line of credit, which is more risky." This will result in some consumers not being able to get credit and others, even those with good credit, paying more, according to Yingling.
Yet despite those risks — which some experts dismiss as more hype than reality — Congress may have missed its chance to enact stronger consumer protections. What the bill doesn't do:
•Cap interest rates. Sen. Bernie Sanders, I-Vt., introduced an amendment to impose a 15% cap on credit card interest rates. Currently, credit card rates are as high as 30%. Sanders' amendment, which was defeated in the Senate, would have allowed regulators to adjust this cap if deemed necessary to protect issuers' safety and soundness.
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