Credit Cards Weblog

Most of us never bother tounderstand regulatory aspects that impact our day to day lives. Even if some of us do, usually, new regulations take so long to be passed and implemented that they become passé in our minds.

A few years back, federal regulators realized that credit card debt had soared in the USA and a solution had to be found to curb this else it could result in unwanted delinquencies and accumulation of bad debt in the economy. Accordingly, in 2003, the regulators issued Guidance to banks to increase minimum balance amounts so that card-holders could repay their debt faster.

For a card-holder, this had two implications. First; higher minimum balances would lead to an earlier repayment of debt, which would also mean a lower aggregate outflow of interest. This would be beneficial to the consumer. The second implication was that higher minimum balances could mean a sudden drop in disposable income for the consumer, especially if the consumer possessed a number of credit cards.

While issuing the guidelines in 2003, the regulator did not specify the timing or an implementation schedule that the banks needed to follow. It only specified that the guidance should be executed by banks within a period of three years.

While, some banks brought in the increases gradually, other banks introduced it close to the deadline, catching consumers by surprise. The former set of banks, obviously, did not want to reduce their earnings by increasing the minimum balance payable. In this case, not only did the card-holder pay more amount as interest, but also faced the rude shock of a higher minimum payment suddenly. And that too just after Christmas!

It seems that in issuing this guidance, the regulators completely ignored the interest of the general consumer and made it more in favor of the banking industry.