Government intervention into the credit card industry is likely to be "a disaster," contends Robert Hammer, chief executive of R.K. Hammer Investment Bankers, a Thousand Oaks, Calif.-based credit card advisory firm that brokers card-portfolio deals. New card-industry rules the Federal Reserve Bank and other regulators finalized last year that go into effect in July 2010 will have "a crippling effect" on the card industry and consumers, Hammer says. The rules prohibit card issuers from raising interest on cardholders' existing balances and dictate how they should allocate consumer payments. Restricting issuers' ability to reprice cardholders' interest rates will force them to curtail overall credit card offers except to consumers with the best credit scores, Hammer says. The threshold for what is considered a high credit score has moved up to 750 from 700 within the last few years (on a scale of 300 to 850), he notes. The new Fed rules will cause credit card fee income to rise from an estimated 40% of credit card industry revenue to more than 50% as issuers adjust for interest-rate restrictions, Hammer says. Credit card industry loan losses likely will reach $65 billion this year, up 16.3% from last year's loan losses of $55.9 billion he says. A plea last week from Sen. Charles E. Schumer, D-N.Y., and Senate Banking Chairman Christopher Dodd, D-Conn., to implement an emergency freeze on interest rates tied to existing card balances could worsen the situation, Hammer adds. In a letter to Fed Chairman Ben Bernanke and other regulators, Schumer and Dodd noted that the July 2010 date gives card companies more than a year to hike cardholders' interest rates on existing balances before the new rule kicks in. Schumer and Dodd urged the Fed to use its power to make the rule effective immediately. Capping interest rates and restricting issuers' ability to adjust interest rates "would throttle an industry already on its knees," Hammer says, suggesting such actions likely would inhibit economic recovery and dim consumer confidence and access to credit.

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