Consumers have been complaining for a long time about the rates they pay on their credit cards. As a result, the Federal Reserve Bank cut interest rates in February 2008 intending for consumers to benefit by having the interest rate on their credit cards reduced. Instead, many consumers found their interest rate rising because the banks were trying to make up for losses suffered as a result of bad loans.
Lawmakers Move to Assist BorrowersThis action has caused Congress to pass an act to protect consumers against rising interest rates on their credit cards as a result of the economy. At the end of March, the Senate met and approved the Credit Card Accountability, Responsibility, and Disclosure Act which limits the rise in interest rates on credit cards. The already troubled banks have indicated that this act prevents them from charging an interest rate to reflect the risk involved.
Lenders and Patrons Being Disciplined
The banks also complained that this act would raise the credit card issuers’ costs of doing business and would eventually reduce the amount of credit available to consumers. All of these actions are a result of the economic and the subprime mortgage crises. This is just one more area where consumers need to cut back. Learning to live on less credit will enable consumers to make more responsible choices in spending money.
Teen credit card debt has become a problem in recent years as they are bringing an average of $1585 in credit card debt to college, according to Nellie Mae. Teens have not been able to apply for a credit card under the age of 18 without parental consent; however, with the passage of this act, teens will not be able to acquire a credit card without a co-signer. It is questionable whether teens need credit.
Although consumers and banks feel there are disadvantages in the recent act, this may be what is needed to encourage responsible handling of money by consumers as well as responsible lending by the banks. The Federal Reserve reported that "the total consumer debt grew nearly five times in size from 1980 ($355 billion) to 2001 ($1.7 trillion). Consumer debt now stands at $2.6 trillion."
The U.S. Census Bureau reported that Americans "charged $2052 billion dollars to their credit cards and carried $832 billion in credit card debt in 2005. It does not appear that consumers are expected to reduce their spending habits over the next year, as this debt is expected to grow to a projected $1091 billion by 2010."
Whenever people have to change their behavior, there is a time when they have to adapt to the changes, but in the end, the change proves to be beneficial. Consumers need to stop spending money as they have in the past and banks need to be more responsible in lending money to consumers.
 |
