New Fed rules for the industry can boost fairness – and cut into America's debt culture.
Past generations generally knew better than to fall deep in debt. Virtue lay in thrift. These days, Americans are in red ink up to their raised eyebrows – from mortgages to their government's debt. The first reaction is to blame others. A contract's fine print was too fine. Politicians lied about the cost of new programs. Now the latest debt villain, the credit-card industry, is getting its due.
One industry practice expected to be banned is the raising of interest rates on existing balances without clear notice of the reason, such as the end of a teaser rate. Also, cardholders who default on other bills, such as with a utility, won't have their rates raised. Monthly statements will be easier to read.
The Fed was forced to tighten its usury regulations under a threat by Congress that it might act. Lawmakers were hearing complaints about abuse as Americans took on more cards – 697 million cards in 2007 for a nation of 300 million people. The industry was making big money with more complex rules that allowed them to raise rates, often for any reason. And it was also giving cards to almost anyone – more than half of college students carry four or more cards. Such looseness of credit has left Americans carrying nearly $1 trillion in card debt.