Credit Crisis Advisory: The Credit Card Accountability Responsibility and Disclosure Act of 2009
A new financial services market is emerging from the current turmoil that is more protective of consumer interests. The Credit Card Accountability Responsibility and Disclosure Act of 2009 (“Card Act”), which was signed into law on May 22, 2009, will have important implications for financial institutions.
For the card industry, the Card Act comes at a challenging time. After achieving pre-tax profits of $40 billion in 2007, in 2008 losses began to mount and credit markets began to stall, denying many issuers access to securitized funding. After a significant period of expansion, the industry now faces the prospect of contraction.
The new legislation reinforces actions already taken by the Federal Reserve and other agencies to provide greater consumer protection and transparency in financial services, but goes further in several areas including restricting the ability of the industry to raise rates retroactively. The Card Act underscores the need highlighted by the credit crisis for issuers to employ more targeted customer segmentation and to abandon some of the mass marketing practices of prior years. Revised business models and leaner operating environments are likely to result.
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