In the most sweeping changes to the credit card industry in 40 years, President Obama is expected to sign a bill Friday to restrict practices that consumers say have pushed them deeper into debt.
The legislation which includes restrictions on interest rate increases and credit offered to college students deals a blow to the banking industry, which has lobbied aggressively against tighter regulation. At the same time, it provides less than a complete win for consumers because it doesn't cap interest rates or fees.
The legislation "is not going to be a hanging for banks, but I think Congress has collared them and are bringing them in," says Robert McKinley, founder of CardTrak.com, which consults with banks. "It's been the Wild West for the card industry for a long time."
The changes will affect most households in America. About 90 million households carry credit cards, with an average debt load of more than $10,500, according to CardTrak.com. The curbs, which mostly take effect in nine months, deal with controversial practices including:
•Interest rate increases. Issuers can generally raise rates on existing credit card debt only if consumers have paid their bill more than 60 days late.
•Penalty fees. Issuers can't charge an over-limit fee unless consumers have asked for this additional credit. Banks also can't impose late fees if they delayed crediting a payment.
•Marketing to college students. Banks can't extend credit cards to people under 21 without verifying their ability to pay or getting their parents' permission.
Amid the restrictions, banks could consider "prudent actions" to continue making card loans, says Ken Clayton of the American Bankers Association, including charging higher upfront fees or shortening the time to pay the bill before finance charges hit. Banks may also review, and pare back, costly credit card rewards programs, experts say.
Overall, the legislation's shortcoming is that it won't help consumers escape from the "sweat box" of credit card debt, says Ronald Mann, a professor at Columbia Law School, which he says is the "pattern of relatively low monthly payments that mean the balance never gets completely paid off."