Fed Survey: Banks to Respond to Laws with Higher Rates, Fees

Gallery.creditcard2While the Federal Reserved today reported positive news on the overall banking sector, it also issued this dark outlook for credit card customers.
A quarterly survey of banks by the Fed found that card issuers will likely increase rates, reduce credit limits and hike annual fees in response to the credit card reform laws. They will take these actions for both prime borrowers — those with above-average credit histories – and the higher-risk borrowers with poor or tainted credit, the Fed said.
Banks will also likely raise minimum credit-score standards for the high-risk, or non-prime, borrowers, the Fed said.
The sweeping credit reform laws are slated to take full effect by Feb. 22. The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 was signed into law by President Obama in May. The laws restrict how and when card issuers can raise interest rates, impose fees or modify policies.
Banks have already raised rates, reduced credit limits or cancelled cards – even on prime borrowers – in anticipation of the reform. In response, the House last week voted to immediately enforce the new laws, but the measure may not have the necessary votes in the Senate.
The Fed released these finding on the same day they reported that 9 out of 10 bank holding companies, deemed short of capital in May, had raised their reserves enough to withstand the risk of higher unemployment and slower economic growth, or a “worse-than-expected economic scenario.” The companies “now have increased their capital sufficiently to meet or exceed their required capital buffers,” the Fed said.
The one exception, GMAC, “is expected to meet its remaining buffer need by accessing the TARP Automotive Industry Financing Program,” one of several government programs created to assist the auto industry, the Fed said.
In a positive summary, the Fed said the capital needs assessment of all banking companies – a total of 19 – “provided important information about the condition of major U.S. financial institutions during a period of high stress and uncertainty, and helped to increase public confidence in the banking system.”
See Related Articles:
House Votes for Credit Reform Now, but Senate Prospects Dim
U.S. Seeks to End “Unfair” Practices with Reform Laws
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