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Rounds Concerned About Impact Of Credit Card Rules
By CARSON WALKER
Associated Press Writer
SIOUX FALLS — New credit card rules intended to protect consumers could have a big impact on South Dakota’s financial industry, but at least companies have 18 months to see if they can adjust their business models, said Gov. Mike Rounds.
The rules, which take effect in July 2010, will allow credit card companies to raise interest rates only on new credit cards and future purchases or advances, rather than on current balances.
Most of the changes were proposed in May and drew more than 65,000 public comments — the highest number ever received by the Federal Reserve.
They also restrict such lender practices as allocating all payments to balances with lower interest rates when a borrower has balances with different rates.
The changes could cost the banking industry more than $10 billion a year in interest payments, according to a study by the law firm Morrison & Foerster.
The adjustments were approved Thursday by the Federal Reserve, the Treasury Department’s Office of Thrift Supervision and the National Credit Union Administration. They mark the most sweeping clampdown on the credit card industry in decades and are aimed at protecting consumers from arbitrary hikes in interest rates or inadequate time provided to pay the bills.
Most of South Dakota’s credit card companies will be able to adjust, Rounds said.
But a sixth change restricts so-called low-limit or subprime cards for people with low credit scores. The cards typically have no more than a $500 credit limit but require a large upfront fee.
As proposed, that fee would be limited to 25 percent of the balance and give the cardholder up to six months to pay it off, Rounds said.
Roughly one out of three people issued such cards charges up the balance and doesn’t repay it, which will make it more difficult for companies to offer the cards, he said.
“They’re expensive to issue. There is a risk involved in it. And they haven’t found a business model that does a better job of weeding out those individuals who don’t intend to make a payment,” Rounds said.
The “good news” is that firms have 18 months to see if they can come up with a different model before the rule takes effect, but ultimately 3,000 to 5,000 South Dakota jobs could depend on that outcome, he said.
The impact for many consumers is that they won’t be issued a card, which could force many to rely on payday loans that don’t help consumers rebuild bad credit, Rounds said.
Greg Ticknor, president of Total Card in Sioux Falls, said there are 1,500 pages to sort through but it appears the company already complies with most of the changes.
The subprime rule is unfortunate for consumers, but he expects his business to be able to adjust.
The rules, which take effect in July 2010, will allow credit card companies to raise interest rates only on new credit cards and future purchases or advances, rather than on current balances.
Most of the changes were proposed in May and drew more than 65,000 public comments — the highest number ever received by the Federal Reserve.
They also restrict such lender practices as allocating all payments to balances with lower interest rates when a borrower has balances with different rates.
The changes could cost the banking industry more than $10 billion a year in interest payments, according to a study by the law firm Morrison & Foerster.
The adjustments were approved Thursday by the Federal Reserve, the Treasury Department’s Office of Thrift Supervision and the National Credit Union Administration. They mark the most sweeping clampdown on the credit card industry in decades and are aimed at protecting consumers from arbitrary hikes in interest rates or inadequate time provided to pay the bills.
Most of South Dakota’s credit card companies will be able to adjust, Rounds said.
But a sixth change restricts so-called low-limit or subprime cards for people with low credit scores. The cards typically have no more than a $500 credit limit but require a large upfront fee.
As proposed, that fee would be limited to 25 percent of the balance and give the cardholder up to six months to pay it off, Rounds said.
Roughly one out of three people issued such cards charges up the balance and doesn’t repay it, which will make it more difficult for companies to offer the cards, he said.
“They’re expensive to issue. There is a risk involved in it. And they haven’t found a business model that does a better job of weeding out those individuals who don’t intend to make a payment,” Rounds said.
The “good news” is that firms have 18 months to see if they can come up with a different model before the rule takes effect, but ultimately 3,000 to 5,000 South Dakota jobs could depend on that outcome, he said.
The impact for many consumers is that they won’t be issued a card, which could force many to rely on payday loans that don’t help consumers rebuild bad credit, Rounds said.
Greg Ticknor, president of Total Card in Sioux Falls, said there are 1,500 pages to sort through but it appears the company already complies with most of the changes.
The subprime rule is unfortunate for consumers, but he expects his business to be able to adjust.
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