Credit Card Companies Likely to Change Policies in Response to Finance Reform

Ending a two-year debate on financial reform, President Obama signed an 800-page bill in late July 2010 to reign in banks from risky trading, perilous home lending practices, and other “speculative trades.” As a result, Federal and state regulators have tighter oversight that may spark a reactive change in lending policies.

The law’s provisions include:

Legal Maximum Minimums

The law allows merchants to establish their own minimum purchase levels for accepting credit cards–up to a $10 maximum level regulated by the Federal Reserve. Before the legislation was signed, merchants technically broke the law in setting a $10 minimum credit card purchase. Now they can do so legally, so consumers beware.

Service Fee Ceilings

Under the reform law, the Federal Reserve may set limits on service transaction fees. The rule applies only to lenders with over $10 billion in assets, but the fallout may influence credit unions and smaller lenders as they search for other ways to charge customers. Keep your eyes peeled: many banks may respond to the law by removing or downsizing rewards and cash back rebates.

Protecting the Consumer

The new law creates a Consumer Financial Protection Bureau (CFPB), run under the auspices of the Federal Reserve in an effort to monitor and shut down lenders who may be rushing headlong toward conditions requiring yet another taxpayer bailout.

Retailers Recover Cash Discounts

Before the legislation, industry risk factors were evaluated by banks, enabling lenders to hit merchants with transaction fees that could swell to five percent. Now merchants may choose to offer cash rebates or volume discounts to stimulate sales. For example, think of the long-held practice of setting cash-or-credit card prices at the gas pump.

Only time will tell how lenders choose to recover profits after losing the right to continue some of their reckless practices. Look carefully at your credit card transactions and terms of use. Perks are bound to change.