The credit crisis has had a huge impact on the world, many tracing it back to the subprime lending and the “liar loans” that were given to people that were considered to be of high risk when it came to defaulting on repayments. New legislation is intended to be put in place that will supposedly address the deceptive and unfair practices of companies issuing credit cards.

The bill would effectively constrain the credit card companies from exercising their ability to adjust rates according to an individual’s risk factors. As it stands your rate is determined by your history and current circumstances, basically the way you have handled previous credit and the way you are currently handling it. Rather than allowing credit card issuers to continue along this vein, they are to be forced to spread the risks and their subsequent consequences across their entire portfolio of customers.

This would mean that low-risk card holders will have to subsidize their high-risk peers. When you look at the recent history of credit cards you will see that in 2005 some 75% of the American population held a credit card whereas the 80’s saw an average credit card possession of only 30%. A Government Accountability Office study reported that risk assessment has been fundamental in allowing “issuers to offer better terms to some cardholders and more credit cards to others”.

It is interesting that the current U.S government is looking to punish credit card companies for accounting for their customer’s risk changes.