Meredith Whitney on Upcoming Credit Card Changes

by James & Miel on April 6, 2009 · 0 comments

Hi All,

Its Monday, time to get the week started. Among the usual flood of financial news is an interview with noted analyst Meredith Whitney. If you don’t know who Meredith Whitney is, she’s a star stock examiner who gained some notoriety for issuing sell ratings on several of the major banks before last years meltdown (1). She’s now regarded a someone who has a great deal of insight into the economy.

Whitney gave a recent interview with Steve Forbes. Relevant to your personal finance, Whitney argued that credit card regulation will encompass the following changes:

1) Requiring a 21 day grace period before repayments must be made. Right now, the grace period for repayment of credit card balances is subject to whatever terms the credit card companies want. After the latest reforms get implemented, the credit boys will have to give you 21 days to fork over the payment.

2) Mandating that payments be applied to high interest portions of debt. Right now, if you get a teaser rate on a card or balance transfer, the credit card company applies the payment to the lower teaser rate. The new rules will mandate that payments go towards the part of the loan that carried are higher rate.

3) Universal default will be forbidden. Right now if you are late on any of your obligations, the card company can raise the rate on your debt – this is called universal default. The new rules will forbid this.

These all sound great, whats the downside? Whitney predicts that the banks will cut the amount of available credit they offer. Why? If someone does start having problems, the banks can’t use universal default to raise their rates, so they will cut credit lines to avoid being stuck holding the bag.

Click here for the interview.

Best,

James

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