Credit Card Control: An American Perspective

America is run on credit and with an $800 billion stimulus package being implemented; President Obama’s administration is also taking action to make sure the fix has a degree of permanence attached to it.  It has been a bad week in many respects for the US economy with the announcement of one of America’s largest car makers, Chrysler, filing for bankruptcy and the announcement of tens of thousands of job losses.  In the same week, President Obama had “informal” talks with the major credit card companies; as informal as a fireside chat may be with the world’s most powerful man.

The road to tighter personal credit control has been laid down by the US government and they intend the major sources of credit, the credit card companies, stick to the straight and narrow from here on in.

Tighter Credit Card Regulation

The US government is passing far stricter consumer protection legislation and more is on the cards – all aimed at tightening up who they can lend to, when they can lend and the terms of extending credit both when the debt is initially incurred and also after the debt is established.

American credit card companies have been notorious for extending credit on favourable terms only to jack the interest rates and fees up to extremely high levels at the drop of a hat – the US industry is far more fluid and flexible in this respect than in the UK but these times may be coming to an end.  The US debtor can expect to be told “No!” far more often than they are used to when applying for credit, existing credit card limits are going to be reduced for many borrowers even down below their existing balances though the consumer is going to benefit from much tighter restrictions on the increases in interest rates and charges that can be applied in future.

Why This Affects the UK

The UK government has already announced a grace period for debtors to notify their creditors in order to get their finances in order with interest charge moratoriums, adjusting monthly repayments to affordable and reasonable levels and not being harassed by debt collection agents.  This may be the thin end of the wedge as Britain is buckling under a mountain of debt which no grace period is going to clear up; with the overhaul of the personal insolvency rules relating to personal bankruptcies and the number of alternatives such as IVA’s and the relatively new Debt Relief Orders (DRO’s), the government can be expected to monitor closely the situation and the recently announced soaring rises in declared insolvencies is likely a sign that further intervention is required at the source in order to prevent future increases in the levels of insolvency.

There is also the well-known adage that what happens in America usually ends up happening in the UK shortly thereafter – in this instance, probably sooner rather than later.