We Have New Credit Card Rules
- 2009 23 Mar
In late 2008, the Federal Reserve Board, which oversees and regulates the credit card industry, cracked down on unfair and deceptive practices by credit card companies, including the fees and interest rate increases blamed for pushing Americans deeper into debt.
Sounds fabulous, doesn't it? One television news anchor reported these events as "life-changing" for anyone with credit card debt, as if she were announcing that everyone with a credit card just got a bail out.
Not so fast, Missy. It's true that the Fed made changes to the rules for credit card issuing banks in favor of consumers, but they gave credit card companies an 18-month grace period before these changes take effect in July 2010.
Keep in mind, also, that these changes are not laws, but rather rules for Federal Reserve member banks, thrifts and credit unions. Congress, on the other hand, can pass federal laws that are binding. All credit cards, also known as "open ended credit," are subject to The Fair Credit Billing, Public Law 93-495, 93rd Congress - H.R. 11221, which became law in 1974. It was amended in 1986.
Representative Carolyn Maloney (D-NY) introduced a bill to Congress that would once again amend The Fair Credit Billing Act. It's called the Credit Card Holder's Bill of Rights, and it would stop a lot of the flagrant abuse by credit card companies. The bill was passed in the House of Representatives in September 2008, and now it sits in the Senate, sidetracked.
Back to the changes announced by the Federal Reserve Board. Here are the highlights:
1. Companies will not be able retroactively to raise interest rates. If they raise a rate, it must apply to future purchases only and the account holder must get 45 days notice. However, the issuer will be able to impose the default rate on the entire balance if you are late or do something that breaches your original agreement.
2. Card companies will be required to give consumers at least 21 days to make a payment before a late fee can be imposed.
3. Two-cycle billing will be banned.
4. Many accounts have different interest rates for different portions of the balance (balance transfers, cash advances, etc). Under the new rules, any payment the consumer makes beyond the minimum will have to be applied to the balance with the highest interest rate or spread proportionally to all balances.
These changes, when they go into effect, will be good for consumers and bad for card issuers. In fact, one report suggests that these simple changes will cost card-issuing banks millions each month in lost revenue. Don't think they are not already scrambling to find ways to recoup that money even before they lose it.
That's why we need to start watching for new fees and new rate increases during the interim.
Paying off all your credit card debt is the best response to these new developments. That is the only reasonable recourse we have against the outrageous practices of credit card issuers.
Published March 23, 2009.
Copyright © 2009 Mary Hunt. All rights reserved. Permission to reprint required.
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