Credit Card Regulations – Changing over Time
Consumers currently caught in a credit card debt trap are eagerly awaiting the regulatory changes initially set to take effect in July 2010. All signs are good that these changes will take place much sooner.
With that in mind, it’s interesting to look back at regulations that did and didn’t exist in the early days of the credit card industry.
For instance, until the mid-70′s there were virtually no regulations other than those imposed upon members by the industry itself.
Banks eager to cash in on the interest paid on revolving credit card accounts were aggressive in gathering new customers – so aggressive that they mailed active credit cards to consumers who had not asked for them.
Some of those consumers were income-earning adults, but some were not. In fact, it was not unusual during the late 1960′s for college students living away from home to find a shiny new credit card in their mailboxes – just begging to be used.
This practice was banned when the U.S. Congress began regulating the credit card industry in the 70′s. Interestingly, while card issuers are right now scaling back on issuing credit, reports are that they are still recruiting new card members on college campuses.
Because merchants pay the credit card companies for the use of the cards, some merchants wanted to reduce the impact on their profits by either imposing a surcharge on customers for use of the credit cards, or raising prices overall and giving a cash discount to those who did not use them. The credit card issuers said NO.
Consumer groups sued and the card issuers relented. But then consumers asked Congress to step in, which it did. The 1968 Truth in Lending Act (TILA) was amended in 1974 to prohibit customer surcharges, but allow cash discounts. That ban lapsed in 1984 and has not been reinstated.
Meanwhile, until 1996, laws existed that capped the amount of interest and fees that credit cards could charge. Then, in a case entitled Smiley vs. Citibank, the U.S. Supreme Court lifted those restrictions. That’s why late penalties that once were $5 – $15 are now $29 – $39 and even higher. That’s also why you might see an interest rate hovering at 30% if you’re late with a credit card payment.
Another practice that helped consumers become buried in debt was the low minimum payment requirement. Many card issuers required such a low minimum that consumers didn’t pay the monthly interest – causing their balances to grow even with no new purchases added. Guidelines laid out in 2003 now require banks to require a monthly payment that covers the current month’s interest plus at least 1% of the principal due.
