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Instant Card Offers May Disappear After Holiday Season

By Faye Mergel
Published: Tuesday, December 29th, 2009

Store cards offering huge discounts on item purchases are very popular during holiday season. Malls and retail outlets are enticing shoppers to sign up by tempting them with a luscious 15 percent slice off some tag prices. However, they could disappear next year as the government will begin implementing new measures to make sure that a borrower’s financial status and credit score is commensurate to what he owes.

Instant Card Offers May Disappear After Holiday SeasonFederal regulators note that store cards have higher default rates because it also have more number of cardholders with low credit ratings compared to general purpose cards. Since loan default is a major contributor in the recent economic downfall, the government will try to prevent consumers from defaulting on loans by keeping them away from it, experts explained.

CARD Act, which will take full effect on February 22, 2010, will prevent creditors from lending to borrowers who show weak ability to repay their debts. The creditworthiness of an individual will be assessed using several factors such as his income, debts, and credit score. Federal officials say this would help in keeping consumers off debts which they could not pay.

However, efforts by federal government outrage retailers as they view the new rule as a killer to their lucrative in-store card deals. Some off the largest names in retail industry—Saks Fifth Avenue, Lord & Taylor Macy’s, and Best Buy—recently expressed their strong objections over new rules proposed by the Federal Reserve Board.

Mallory Duncan, who speaks for the trade group National Retail Federation, explained that the board wants to require store card issuers to review income information of shoppers who want to sign up for an instant store card. He said a store card will not be so instant if shoppers are required to present their income stubs during the point of sale (the point where a shopper goes to a cash register to complete a purchase).

Instant store cards only require basic personal and financial information about a customer since their availability is determined by banks which review an applicants credit score and financial report. Additional financial information such as a credit score is obtained by banks within seconds, which makes the application convenient for shoppers.

Under new rules, card issuers will be required to determine an applicant’s income, assets, and financial obligations.  Duncan views the step unnecessary for instant cards and believes it is more appropriate for larger purchases such as home and car loans. Retailers support his claim, saying a credit score is already a sufficient proof of a shopper’s ability to pay. They add that incomes can be deceptive since they are self-reported and often not verified.

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