New global banking regulations should raise rates

Many economists expected credit card lenders and other banks to raise their rates significantly ahead of both the Credit Card Accountability, Responsibility and Disclosure Act and the financial reform bill. It didn’t happen then, but it will have to do so over the next several years.

New global banking regulations passed this week by the Basel Committee on Banking Supervision require financial institutions to carry more equity, according to a report from Marketwatch. That will cause them to boost rates, fees and down payments on all types of loans, including those for credit card debt. While they will need enough capital to cover at least 7 percent of their total assets, the increases are designed to better insulate institutions from another financial crisis.

However, these new regulations won’t take full effect until 2019, so lenders will likely phase them in slowly – and less drastically – over the next nine years, the report said.

“The way regulators have decided not to have any more bailouts is to over-capitalize the system,” Cornelius Hurley, director of the Morin Center for Banking and Financial Law at Boston University, told the site. “The cost to the consumer will be embedded in that.”

To meet these new minimums, financial institutions are expected to both raise rates on everything from auto financing, mortgages and credit card debt, Marketwatch reported. They will also make loans more difficult to obtain in an attempt to lower the total amount of assets they carry. Hurley noted that as capital requirements increase, banks and others are less motivated to lend in general.

However, the impact of these new regulations is expected to be minimal compared to those in the U.S. that altered the way lenders could deal with consumer credit card debt. One Marketwatch financial analyst said the changes will be “much less evident” to the average consumer over the next several years.

Among the changes mandated by the Credit CARD Act, apart from those related to boosting interest rates on credit card debt without warning, are rules that govern how long introductory offers must last, and the amount of late fees lenders can charge for a consumer’s first offense.