If we have learned anything over the last year, it is that no industry is immune from the financial crisis. Your first line of defense against the economy is your job. The second is your credit cards. Credit cards have forced a whole new financial difficulty on our country. In a previous post, I spoke about the new rules that will be taking effect in 2010 regarding interest rate increases. But what is going to happen in the meantime? How will this affect business life lines? How will this affect interchange rates on merchants accounts?
Many large credit card companies, such as Capital One, are disclosing a rise in delinquencies for November of 2008. Issuers, like American Express and Bank of America, are raising rates on existing balances and slashing credit lines in the short term. Banks are expected to cancel $2 trillion in available credit over the next year. If credit card issuance is being cut and rates will soon be regulated, it only seems inevitable that banks will turn to raising Interchange rates on merchants to cushion the fall.
Although merchants can’t do much about rising interchange rates, they can begin to take Pin based debit cards instead of credit cards to ease the fees. Offering gift cards and loyalty cards are also becoming very popular. The Federal Reserve and Office of Thrift Supervision are already fighting the battle of Interchange rates. Small business owners may not like the rate hikes, but banks may have no choice. The money has to come from somewhere and it certainly cannot keep coming from government bailouts. What happened to taking responsibility for your own credit and debt?
It is arguable that banks should be able to adjust interest rates as they assess the risk of customers on an ongoing basis. What stops banks from misusing the power to adjust rates? Or is this a great level of protection for all consumers in an economic downturn? As the credit crisis continues to go round and round only coming years will tell what can be done to solve the situation.
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