The credit card landscape is changing under tighter regulation

ougher federal regulations are changing the credit card industry landscape.

Credit card offers that once flooded mailboxes - even in college dormitories - have slowed. The invitations to marginally-qualified consumers are being reduced, and the number of card offers without annual fees seem to be dwindling.

It's all part of the reaction by credit card issuers to the 2009 Credit Card Accountability Responsibility and Disclosure Act, a landmark piece of consumer protection legislation that took full effect on Feb. 22, 2010. The Credit CARD Act, as it's known, was intended to stem abuses in credit card lending such as “universal default,” in which the interest rates on all of a consumer's credit cards could be increased if he or she had a late payment on only one of their cards.

A big provision of the Credit CARD Act changed the finance charge disclosure. Monthly statements are now required to reveal the total interest charges a consumer will pay and how long it will take him or her to pay off current charges if making only the minimum allowable monthly payment.

Consumer education specialist Tahira Hira of Iowa State University believe the financial sector was not acting responsibly in offering credit to individuals who were not in a position to repay it, and consumers were careless in taking advantage of credit offers they could never repay.

“If I am trying not to eat too much and to control my weight, and someone offers me a piping hot cinnamon bun, it's so hard to turn it away,” said Hira, a professor of human development and family studies. “That's what they were doing with people.”

Hira says the law will be good for credit card issuers if they were using bad business practices in extending credit.

The largest bank in Iowa, Wells Fargo, eliminated “overlimit” and “check by phone” fees, and no longer applies penalty pricing to accounts that qualify. It also eliminated default pricing, according to Lisa Westermann, a spokeswoman for the bank's card services and consumer lending department.

Wells Fargo will no longer charge both a late fee and non-sufficient funds fee in the same billing cycle. The bank adjusted its late fees and returned check fees to the “safe harbor” fee structure provided in the Credit CARD Act rules.

That means the first time a late fee or non-sufficient funds fee is assessed, the charge is $25 or the minimum payment due, whichever is less. Charges for such “events,” if they happen again within a rolling six-month period, could be as much as $35.

Card issuers aren't expected to see as much revenue under the new regulations, so most will have to make it up somewhere.

Wells Fargo said it raised its cash advance fees from 4 percent to 5 percent, for example. Westermann said Wells plans to “continue to provide credit to as many consumers as possible,” and that its pricing “reflects the business climate.”

Iowa Bankers Association CEO John Sorenson sees the Act as a mixed bag for consumers, partly because it takes away flexibility that banks could previously use to design credit card offerings tailored to customers needs.

“When you become very prescriptive, it makes banking products more like commodities,” Sorenson said. “It does not give the flexibility for banks to tailor products to meet specific needs.”

Sorenson said he doesn't dispute the notion that the act will result in fewer credit card offerings without annual fees, or that it will result in less credit availability for some types of credit card borrowers.

Most community banks in Iowa - as opposed to large nationwide or regional banks - don't have their own credit card products, Sorenson said. Rather, they've contracted with outside credit card issuers to market their products under their bank's brand.

More common among community banks, Sorenson said, are debit card offerings, which can include a credit component.

Corridor-based Midwest One, Bankers Trust and Cedar Rapids Bank & Trust said they don't expect substantial change in their credit card offerings because of the Credit CARD Act, generally viewing the abuses that led to the act as a product of large, nationwide credit card issuers.

“There were definitely institutions that were way out there, and other institutions like us that didn't have to change a thing,” Cedar Rapids Bank & Trust Senior Vice President John Rodriguez said.

Cedar Rapids Bank & Trust did have to eliminate one card offering that waived the annual fee if the card was used for a specific number of transactions, Rodriguez said.

“If you had an annual fee, you had to charge it, and there was no way to waive it,” Rodriguez said.

The Credit CARD Act was predicted to largely eliminate so-called “fee harvesting” cards. Such cards are issued to individuals with weak credit histories that suggest a higher probability of slow payment or default, a concern the issuers made up for by imposing hefty upfront fees and late fees.

Here are some of the key characteristics of the Credit Card Accountability Responsibility and Disclosure Act of 2009.

• Payoff timing disclosure: Credit card statements are required to indicate how long it will take and how much it will cost to repay the balance if only minimum payments are made each month.

• Reasonable fees: Late payment fees, over-the-limit fees or any other penalty fees or charges must be reasonable and proportional to the violation.

• Two-cycle billing: A poorly understood practice that often raised finance charges for cardholders - it was banned.

• Over-the-limit fees: Card issuers can't charge a fee for exceeding the card limit unless the cardholder has opted-in to be allowed to go over the limit.

• Fixed-rate cards: Rates on a credit card program promoted as a “fixed” interest rate program cannot change or vary for any reason over the period specified in the terms of the account.

• Subprime cards: Fees on credit cards cannot exceed 25 percent of the credit limit when the account is opened.

• Young consumers: No credit card may be issued to a consumer under 21 unless he or she has submitted a written application with the signature of a cosigner who is at least 21 years old and who has the means to repay the debts of the cardholder, or has submitted financial information indicating the person under 21 has the ability to independently repay the debt.

• Payment allocation: If portions of a cardholder's balance are at different interest rates, any payment in excess of the minimum payment must be credited first to the balance with the highest interest rate.

• Changes in payment requirements: Late fees or finance charges can't be assessed for delays in crediting payments due to material changes in the mailing address, office or procedures for handling cardholder payments during the 60 days after the change took effect.