Costs and benefits of financial reform laws

Credit Card

One year after the credit card reform law was passed, government agencies studied whether credit card holders saw benefits. Photo credit: MoneyBlogNewa/Flickr/CC-BY

Over the past few years, Congress has passed a slew of financial reform laws. There has been opposition, to be sure, but laws like the CARD Act were created in order to ensure that consumers were being treated fairly by financial institutions. The effects have been as intended in some ways, but there will be consequences.

Credit card reform laws reviewed after one year

Recently, the Consumer Financial Protection Bureau performed its first function, according to MSN and did a study regarding the impact of the Credit Card Accountability Responsibility and Disclosure Act by randomly polling people who held at least one credit card. The Bureau found that the credit card law was actually working The percentage of people in the study who reported an increase in their interest rate dropped from 15 percent before the CARD Act to 2 percent after it was passed. When subjects were asked if they benefited from the law, about 57 percent said that they noticed positive benefits from the law.

Bank backlash

When reforms or stricter regulations are passed, large multi-national mega-banks seek other avenues for income. One of the casualties of financial reform has been free checking. Large banks, such as Bank of America, JP Morgan Chase and Wells Fargo, are getting rid of free checking. Debit transactions for account holders at large banks may end up capped at $50 to $100, according to CNN. When customers pay merchants with debit cards, the merchant is charged an “interchange fee” by the customer’s bank to complete the transfer. The Fed is rumored to be considering a cap of 12 cents per transaction, far below the current average of 44 cents. Interchange fees generate billions in revenue for large banks, so they will look to make up lost ground by gouging customers.

The conspicuously silent party

Amid all the buzz surrounding large banks in financial news outlets, there is scant mention of credit unions. Credit unions are affected by new banking and credit regulation but not as adversely because the motive for business operations is the service of customers, not making sure shareholders and CEOs are awash in cash. Credit unions also can offer lower interest rates on credit cards, car loans and personal loans because they are nonprofits and face less risk in the marketplace than banks.





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