When credit cards were introduced about 50 years ago, issuers practiced a one-size-fits-all approach of charging an annual fee and roughly the same interest rate of about 18 percent to everyone. As the industry became more deregulated in the 1980s, around the time that credit scores were introduced, issuers were able to separate the risky from the not-so-risky borrower and tailor the terms of card contracts.
The money they made from customers who did not pay their bills in full each month became an important revenue source. The industry makes $15 billion annually from penalty fees, and one-fifth of consumers carrying credit card debt pay an interest rate above 20 percent, according to figures cited by the White House and compiled from the Government Accountability Office and the Federal Reserve.
To make up for the lost revenue, card issuers will turn to those customers who pay what they owe in full and on time every month, analysts said. Gone will be the days when creditworthy customers enjoyed the benefits of low interest rates and cards that offer rewards such as frequent flier miles and cash back, they said. Annual fees, which had been banished to cards with rewards programs, are likely to return. Offers for zero percent balance transfers are likely to become more rare.
"This industry will start looking more like a one-size-fits-all pricing approach which dominated in the '80s -- 18 percent interest and $20 annual fees," said David Robertson, publisher of the Nilson Report, which covers the industry. Customers who pay in full each month will have "to start picking up the slack, to start pulling their weight."
Consumer advocates and legislators pointed out that the legislation still allows issuers to raise interest rates for future purchases as long as they give 45 days' notice. It also does not set any interest rate caps, allowing issuers to charge new customers any rate they want.