When lawmakers passed the new Credit Card Reform Act in May, it was widely seen as a victory to help protect credit card holders against interest rates hikes, prohibitive overdraft fees, and abusive billing practices.
Except for one little thing. Most of the provisions passed were not set to take effect until February of 2010. That left credit card companies a window of almost nine months to take steps to protect themselves against one of the most significant provisions of the new law, which restricts card issuers’ ability to arbitrarily increase cardholder’s interest rates on existing card balances.
Nine months is a long time. If lawmakers expected credit card companies to simply stand by and wait for the new restrictions to take effect, they were badly wrong. By now it’s old news that card issuers, in advance of the new law, have hiked interest rates, turned fixed rate cards into variable rate cards, and in other ways changed cardholders’ terms to minimize the effect of the new restrictions on interest rate increases.
For some lawmakers, somewhere along the line it got to be just one straw too much. In advance of the holiday shopping season, Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee and Rep. Carolyn B. Maloney (D-N.Y.) chairman of the Joint Economic Committee, have proposed moving up the effective date for the new credit card law to December 1, rather than waiting until early 2010. Needless to say, this is causing widespread protests from credit card issuers, which argue that a December 1 effective date doesn’t leave them enough time to prepare for the new laws.
Bank of America, however, has taken a surprisingly different tack. In a recent letter to Rep. Barney Frank, John Collingwood, director of federal government relations for Bank of America promises to not raise interest rates or suddenly change terms on cardholders ahead of the February 22 effective date. In the letter, Collingwood states that, “In light of the concerns expressed to us by our customers, Bank of America will not implement any change in terms (risk or economic based) re-pricing of consumer credit card accounts [sic] between now and the effective date of the CARD Act.”
Collingwood goes on to state that BofA has made this decision in response to concerns raised by cardholders, and that this new policy is consistent with “other consumer oriented policy changes” made recently, such as giving customers much more control over the risk of incurring overdraft fees and substantially limiting the application of those fees.
So, what gives? Is BofA all of a sudden getting warm and fuzzy? Well, cynics might argue that BofA is making this generous gesture simply because it has made sufficient progress in repricing the interest rates and changing terms on its existing credit card portfolio. Further, BofA is badly in need of a PR win to counteract the damage done by a recent YouTube video-gone-viral, in which an irate BofA cardholder threatens to start a credit card debtor’s revolution unless BofA lowers her 30% credit card APR back down to its pre-rate-hike level.
Looking at the bright side, however, BofA’s unusual step might, just might, be a first indication that credit card companies are waking up to the one fundamental truth of doing business: consumers vote with their feet. In a survey appearing in the November 2009 issue of Consumer Reports, one third of 1,200 cardholders polled said they had cancelled at least one credit card since the beginning of 2008, often in reaction to tightened credit card terms. Almost half of the cardholders surveyed also said that they had scaled back on credit card spending.
So, let’s commend BofA for taking a step towards putting on a kinder, friendlier face. One can only hope that other card issuers will join Bank of America in recalling that old adage from Business Admin101: generally speaking, it costs a lot more to get a new customer than it does to keep one.
