The Credit Card Reform bill has just passed the House, and it will soon go to President Obama to sign. Ron Lieber has a nice, clear explanation about what the bill actually does, and goes as far as to bunk the credit card industry's threats to cut back on reward programs.
“If you strip away the reward component of a credit card, it's essentially a commodity,” said Rick Ferguson, editorial director at the loyalty marketing company LoyaltyOne. “The reward is what gives it its personality. It works from a branding perspective as well as a mechanism to influence customer behavior and consolidate spending on a particular card.”
That last part is crucial. People who spend a ton generate fees galore from merchants, and that money helps the card company stay in business. So you may soon see card companies giving away more goodies or lowering annual fees for people who hit certain spending thresholds each year. American Express already does this on a number of cards.
Felix Salmon pointed out the other day that, contrary to the notion that credit card companies will now start to punish cardholders who always pay their bills on time, if the companies are as strapped for cash as they say, they aren't going to drive away customers who use their credit cards often thus generating revenue from interchange fees and the like.
The new rules would go into effect nine months after signing. Since the bill is expected to be signed soon, the rules would be established before the new Fed guidelines which implement similar standards and go into effect in December 2010.
-- A. Serwer
