U.S. consumers will see on Thursday the first signs of the biggest overhaul of the credit card industry in at least two decades, as companies will be forced to provide customers with more time to pay their bills and be required to give more warning of contractual changes.
From August 20, credit card issuers will have to give clients at least 21 calendar days to pay monthly bills and will have to warn consumers 45 days in advance of major changes in conditions, under provisions of a law signed in May by President Barack Obama.
Now, credit card issuers have to mail bills at least 14 days in advance and provide a 15-day notice of changes in terms.
Consumers will also be able to reject the changes set by credit cards, and arrange a plan to cancel the debt and close the credit card account.
It evens the amount of power between consumers and credit card companies, but it doesn't prevent credit card companies from charging really significant interest rates if they can find a reason to do it, said Jamie Court, president of consumer advocate group Consumer Watchdog.
Some of the biggest changes to the credit card industry look to limit the ability of companies to impose fees, raise interest rates or sell credit card to students, but those will not go into effect until February.
Those are the ones the card issuers are trying to grapple with to see how to keep the business profitable, said Jason Arnold, an analyst at RBC Capital Markets.
Credit card firms enjoyed hefty profits earlier in the decade, as cheap money ignited a lending boom. American Express Co, usually considered a credit card company for wealthy consumers, became the fastest-growing firm by expanding among less affluent clients.
Other companies grew aggressively by offering no fees and adjusting interest rates according to customers' performance.
However, the housing slump and the financial crisis sent default rates to record highs in the last year. Since then, credit card companies have been closing accounts and trimming credit lines to cushion losses.
Public anger against credit card companies grew as the same banks that were penalizing customers for late payments started receiving billions of dollars of taxpayer money in federal bailouts.
If Uncle Sam is giving free money to banks who have already received at least tens of billions of dollars from the federal government as bailouts, then the American taxpayers should know that there is a national cap on how much they can be charged, Court said.
It is definitely a step in the right direction, but only because we were so far gone in the other direction.
The companies have anticipated that the restrictions of the new law will force them to slash credit lines and raise interest rates, or set annual fees.
Moshe Orenbuch, an analyst at Credit Suisse, estimated available credit lines could be cut by about 20 percent, or $1.2 trillion, as banks adjust to comply with the new credit card law.
American Express, Bank of America Corp, JPMorgan Chase & Co, Citigroup Inc, Capital One Financial Corp, and Discover Financial Services make up around 80 percent of the credit card industry.
(Reporting by Juan Lagorio, editing by Gerald E. McCormick)