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CARD Act made poor poorer and rich richer

[Friday, November 19th, 2010]

According to the Federal Reserve’s recent survey 53 percent of the banks are planning to have their minimum score requirements increased when it comes to their borrowers who carry low credit scores. Moreover targeting the same group, the low credit scorers, 58 percent of the banks claimed that they will reduce the credit limits for this specific group of borrowers.

These moves to be taken by banks are in response with the CARD Act. With the new restrictions and limitations posted by the credit card law credit card providers like banks are now creating new ways on how they can compensate with the loss of profit due to some areas dissolved by the new guiding law. Indeed the legislative law has caused serious impact to credit card companies. For instance the biggest credit card provider in the United States, JPMorgan Chase and Co., in its recent report revealed that their net income when it comes to their credit card units is expected for this year to fall by $750 million. The nation’s largest lenders and card issuers share the same findings of a huge profit loss this year as JPMorgan’s.

The situation places credit card providers to make new areas that will earn them more profits. Some credit card companies created new types of fees not covered moreover restricted by the laws. Some even manipulated the way they calculate their card holders’ fees while some find “creative and legitimate” reasons on how they can raise their interest rates. Credit card issuers are really trying to squeeze more income from their consumers.

In times like this banks and other credit card issuers are becoming more selective with their card holders. As expected less issuers will take chances to low credit scorers since they will add risk to the company. If ever banks will consider low credit scorers, it can be expected that the rates will definitely be unfriendly moreover membership fees and others may be expected.

Whilst consumers with high credit scores benefit a lot with the situation. They will be the population banks and other credit card issuers will be competing for. Since they are good payers, they make money run for credit card companies. This is the reason why they are the types of clients banks and other credit card providers do not want to lose. To allure more credit card holders with high credit scores greater rewards awaiting them are designed to keep consumers continuously use their plastic cards.

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