I watched a program the other night about our federal government’s ten top programs for unintended consequences. One of these is the Ethanol program, which now even environmentalists say was a mistake. The other one that caught my attention was the Dodd Frank Wall Street Reform Bill (Info). It created the Consumer Financial Protection Bureau (CFPB) that oversees credit reporting agencies, payday and consumer loans and credit and debit cards. In addition to regulating loans, credit cards and mortgages, the bill was to stop banks from gambling with their depositors’ money and to regulate risky “derivatives.”
What happens in the real world
A major regulation placed on credit card providers by Dodd Frank was a set of fees they are required to pay for an emergency liquidation fund and to pay for the costs of enforcing the new regulations. In addition, every time a credit card company rejects an application, it is now required to give that person a free credit report.
Of course, being the naïve person that I am, I assumed that the credit card companies would be willing to eat these fees as a way to help recoup the cost of their bailouts and then just take a loss. Quoting the punch line of one of my favorite old jokes, “not so fast there, Abernathy.” Most of the credit card providers decided not to absorb these new costs but to pass them on to their cardholders in the form of increased interest rates and new service fees.
Debit Cards
Dodd Frank also included provisions for topping debit card interchange fees at $0.21 per transaction. The banks could charge an extra .05% of the amount to cover possible fraud losses. This would have saved the banking industry about $4 billion. However, when banks such as Bank of America and Wells Fargo announced that they were going to start charging fees for the use of their debit cards to offset these caps, there was such a hue and cry from their customers that they promptly abandoned the idea.
More unintended consequences
There really is no such thing as a free lunch and the banks are not going to just totally absorb these new costs. Instead, they are trying to offset this loss of revenue by encouraging customers to pay more for one product or maintain certain balances or use their credit cards.
The good consequences
Fortunately, there have been some good consequences as a result of what Dodd Frank did to the credit card industry. For example, the credit card companies have increased their rewards as they try to attract new customers with excellent credit ratings. Both Chase and Capital One have been offering nice bonuses to attract cardholders and there have been some very attractive airline rewards programs announced. Most of the credit card providers are now offering more attractive balance transfer offers–including what are called zero balance transfer offers.
The unintended consequences of debt
You may have run up too much credit card debt for very good reasons. Maybe you had a serious accident or illness or lost your job and were forced to use your credit cards just to pay for everyday expenses. But no matter how good your intentions were, the unintended consequences of going deeply into debt can be severe. You may be receiving hassling phone calls from credit card companies or debt collectors both at home and at work or a debt collector may even be threatening to garnish your wages.
How we can help
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