JEFFREY BROWN: Now, Ms. Feddis, at the same time, is it the case that now some people who in the past were offered credit or might have been offered credit will no longer be offered credit?
NESSA FEDDIS: Well, Congress understood when they passed this law that one of the effects would be that many people, many small businesses wouldn't be able to get credit cards as easily, accounts would be closed, limits would be lowered. They also understood that across-the-board interest rates would go up a bit for everybody.
JEFFREY BROWN: Which we're seeing already.
NESSA FEDDIS: Well, we're seeing that in the advertised rates, the new accounts, but they also understood that people who manage their credit well will to some degree be subsidizing or paying for those who don't. But they made the decision that this was an acceptable compromise -- a tradeoff, if you will -- for the consumer protections.
JEFFREY BROWN: Another thing we're seeing or might be seeing would be annual fees going up.
NESSA FEDDIS: Well, we do know that credit rates will go up. Cards will be harder to get. But beyond that, credit card companies will be innovating and experimenting under the new rules, seeing how consumers respond. We know that they'll be looking at everything.
It's hard to say exactly, but they'll be looking at everything. They'll be looking, as you said, at annual fees. They'll be looking at balance transfer fees, cash advance fees. They'll be looking at that interest-free period, the grace period. They'll be looking at promotional rates. Everything is on the table.
JEFFREY BROWN: Mr. Levin, how do you see this tradeoff?
ADAM LEVIN: Well, first of all, it's more than they'll be looking at this. The truth of the matter is, they've looked at it, and they've acted on it, and for the past couple years now, we've experienced almost a reign of terror in terms of the way that the credit card companies have treated consumers.
And we've done surveys at Credit.com over the past several months where an enormous amount of the consumers that we talk to have experienced what they consider negative situations with their credit card.
Also, it turned out that an enormous number of consumers weren't even aware of things that were going on with their credit cards, so perhaps all of the debate over this is a good thing, because more and more people are becoming aware.
But there's no question there's a tradeoff, but it's been happening in response to the deterioration of the economy. And one last question that I really think we should consider, or at least one of the questions is, was some of this not, in fact, a self-fulfilling prophecy by the credit card companies?
When you had many, many consumers who were solid credit consumers, who were paying down their bills, were on a path, had a plan, and had a budget, and then all of a sudden, out of nowhere -- and this happened -- started well over a year ago -- out of nowhere experienced not only a doubling of their minimum payment -- which may not be a bad thing, because it helps reduce debt -- but also an enormous increase, in some cases, 10 or 15 full percentage points in their interest rates, and they'd done nothing wrong.
It was just simply a function of one bank buying another or banks saying, well, based on financial circumstances, this is what we're going to do. And many consumers who were on a path suddenly got knocked off the path.
JEFFREY BROWN: All right. What's your response?
NESSA FEDDIS: Well, I mean, I think that the interest rate changes are a little bit exaggerated. The credit card companies do report the interest rates that their customers pay. They do release that data. The most recent data available shows that, as of the 12-month period ending in May, that on average interest rates did bump up about a point. Individuals' circumstances may vary, but on average interest rates went up about a point in that 12-month period.
And what happened between 2004-2007, interest rates were on average about 14.5 percent. They went down by a point in 2007, and now they're back up at those levels. So they've gone up a bit.
But most people, until the economic downturn, were paying their credit cards on time. The delinquencies were within the historical norms of about 5 percent. But right now, we're seeing those rates go up. Why? Because of the economy, because of unemployment.
We've found that credit card delinquencies very much track unemployment rates, because the first -- the credit card is the riskiest type of loan, because there's no mortgage, there's no collateral, there's no home or car that will incent people to repay their loan or to offset any losses.
And the first bill people stopped paying -- not even the first loan they stop paying, the first bill they stopped paying is their credit card, because they still need to pay their utilities and their telephone bills. So what we're seeing now in the delinquencies is really a reflection of the unemployment rate.
And we're expecting -- the economists say that unemployment is going to stay high, so I think we're still going to continue to see losses continue to rise, and that means interest rates are probably going to stay up, at least for the time being.
JEFFREY BROWN: All right. Well, we have to leave it there for now, but we'll revisit it, if not before, by February, because even more sweeping changes come in then. Nessa Feddis and Adam Levin, thank you both very much.