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The Credit Card Accountability, Responsibility, and Disclosure Act that President Obama is expected to sign today will force issuers to raise interest rates across the board and devise a plethora of new fees to make up for lost revenues, analysts say. The legislation, which bans many existing card issuer practices regarding penalty rates, interest-rate hikes and marketing of cards to young adults, goes into effect as early as next March (CardLine, 5/20). Among the provisions causing the most alarm among issuers are tighter restrictions on penalizing individual cardholders for specific behavior, such as missing or being late on payments and exceeding credit limits. The law also band universal default, and although most issuers claim they have phased it out, Megan Bramlette, managing director with Auriemma Consulting Group, tells CardLine that until now issuers have operated on the honor system. "Weighing a borrower's total credit exposure to other lenders is a vital tool in managing risk, but now issuers will be forced to put on blinders. They won't be able to raise interest rates on borrowers presenting the greatest risk, so they will have to raise all borrowers' rates," she says. Issuers will be required to cut credit limits to a wide swath of mainstream customers, because their leverage for adjusting to individuals' risk will be severely curtailed, she adds. The new law, which prohibits anyone under age 21 from applying for a credit card without getting a cosigner who agrees to be financially responsible, also is likely to reduce credit options for college students, says Bruce Cundiff, research director with Javelin Strategy & Research. "It's not as important and profitable a segment as the consumer advocates would have us believe, but it could cost issuers opportunities," Cundiff says. Adil Moussa, an analyst with Aite Group, says that the loss of flexibility for issuers in levying penalty fees based on specific customer behavior means that fees for routine card services will mushroom. "We expect to see issuers requiring annual fees on more cards, and experimenting with application fees, statement fees and other services," he says. Synovate, the Chicago-based market-research firm owned by London-based Aegis Group PLC, today said in a report that the number of new credit card offers carrying annual fees is already increasing. Some 27% of all credit card offers mailed to U.S. households during the first quarter ended March 31 carried an annual fee, compared with 18% that carried annual fees during the same quarter a year earlier. Issuers mailed 372.4 million card offers to U.S. households during the first quarter compared with 1.13 billion offers, a 67% decline from the same quarter a year earlier, Synovate says.

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