Blogs > Your Money

Dave Patterson and Erin Preston, a father-daughter team of Certified Financial Planner® licensees, provide thoughts and suggestions on a broad collection of personal finance topics.  Information provided in this BLOG is intended to be of a general nature and may not be appropriate for all situations.  Readers should consult with their own financial advisors before relying on any information contained herein.

Monday, August 2, 2010

The Downside of Regulation

Many hope the recent financial regulation bill passed by Congress will help prevent another economic crisis and eliminate a myriad of financial abuses that impact borrowers, credit card holders and more. While we believe some regulation is necessary, we have reservations about the recent legislation’s cost, complexity and effectiveness. We’ve written before about some of these issues (See our blog post titled “New Regulations off the Mark”, Sunday, July 18th, 2010).

New regulations typically cost financial institutions significant sums to implement systems and procedures to comply with the regulations and in many cases result in a loss of revenue as a result of the new regulations. That means consumers will pay less as a result of the regulations, right? Wrong. It often leads to new fees and penalties that consumers must learn about, sometimes the hard way.

An example of the impact regulations can have on consumers is outlined in the Saturday, July 31st edition of the Wall Street Journal in an article titled “The New Credit Card Tricks” by Jessica Silver-Greenberg. The author’s article discusses the impact of the Credit Card Accountability Responsibility and Disclosure Act of 2009, known as the Card Act.

Ms. Silver-Greenberg points out that credit card fees have risen dramatically, in many cases in advance of the passage of the legislation. In particular, the article states: “According to a July 22 report from Pew Charitable Trusts, a nonpartisan research group, the industry’s median annual fee on bank credit cards jumped 18% to $59 between July 2009 and March 2010. At credit unions, annual fees soared 67% to $25. During the same period, the median cash-advance and balance-transfer fees jumped by 33%”.

In addition, the article reports that foreign transaction fees have increased 50% and penalty interest rates have risen 3.4%. In addition to higher fees, the credit card issuers have implemented new fees and changed billing policies. For example, the Card Act requires consumers have 21 days to pay their bills. In spite of the fact that the legislation encourages that banks not process payments on Sundays, many say they are open for business on Sundays. If your payment arrives on Monday, because there is no mail delivery on Sunday, your payment is considered late and a penalty will be charged.

A number of other subtle changes are outlined in the article. The bottom line is that you must be diligent in reviewing your credit card bills and correspondence to be sure you understand the latest changes. The banks will find creative ways to avoid loss of revenue, which may lead to another round of regulations, more complexity and further creative fees by the banks. Clearly, government regulation is not as easy or effective as one might think.


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