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(snip)"Banks and consumers brace for new credit card rules

By John Poirier

WASHINGTON (Reuters) - The U.S. credit card industry, harshly criticized for imposing surprise fees and interest rate hikes on consumers, may face a day of reckoning on Thursday.

The Federal Reserve is to vote on credit card reforms that may bring some relief to customers who face a variety of ways for being hit with late fees, universal defaults, shorter payment periods and confusing payment allocations for different balances.

Credit card users likely also would see easier-to-read tables in their monthly statements as a result of the changes.

The new rules, which were proposed earlier this year, are expected to total some 1,000 pages. They need approval of the Federal Reserve, the Office of Thrift Supervision and the National Credit Union Administration, which all are expected to act on Thursday."(snip)

(snip)"With Democrats strengthening their control of the next Congress that convenes in January and the financial services sector in turmoil, credit card companies that resisted the changes increasingly have accepted them as inevitable.

They have warned that interest rates charged on credit cards will rise for all borrowers and that borrowing limits may be reduce because of the changes."(snip)

(snip)"Banking regulators have been using focus groups to test the impact of changing credit card rules for the past couple of years and on Thursday are expected finalize some changes.

They are expected to prohibit credit card companies from increasing rates at will, with some exceptions such as those that apply to people who fail to pay a bill within 30 days.

So-called universal default, which permits changing card terms if the borrower defaults on another bill such as utilities or a gym membership, also is expected to be banned.

Double-cycle billing, in which card companies reach back to earlier billing cycles to help calculate interest charged in the current cycle, also is expected to be eliminated."(snip)

(snip)"With the U.S. economy in recession, the market that trades in credit card asset-backed securities faces increasing stress as more consumers fall behind on payments.

As delinquencies and charge-offs -- balances written off as uncollectible -- on credit cards rise, investors demand higher yield spreads for credit card-backed securities."(snip)


What is all of this likely to mean ? Based on the passage of new regulations as described in this news blurb ...

- credit card lenders will have more limited ability to recover subprime credit card losses from subprime credit card holders as a category ... thus the interest rates charged on credit cards of prime card holders will be increased to subsidize the subprime credit card write-offs

- interest rates and penalties charged to subprime credit card holders will increase less, or in some cases be reduced.

- available credit limits for subprime credit card holders as a category will be severely reduced ... with some reduction in credit limits for prime credit card holders as well

- the 'definition' of which would-be credit card account holders are to be considered as subprime will widen to include those with incomes that are difficult to predict / verify i.e. the self-employed.

- availability of future subprime credit card accounts will be greatly reduced as big money bond investors stop purchasing subprime credit card backed securities.

- big money bond investors will demand and receive much higher interest rates on prime credit card backed securities.


in other words, the poor will benefit ... the very rich will benefit ... and those in the middle will wind up picking up a larger share of the 'tab' for subprime credit card delinquencies.