New Credit Card Laws May Help Consumers

There are big changes coming for consumers who use credit cards in mid-2010.  Credit card companies are guilty of a number of questionable practices, including charging exorbitant interest, raising interest rates and changing limits with minimal notice. All of these can happen not only to customers who make late payments or have a poor credit history, but even those who pay on time and use credit responsibly. New rules issued by the Federal Reserve, the Office of Thrift Supervision and the National Credit Union Administration will reign in these practices.

What do the new rules and regulations mean to customers?

First, the rules will limit when your credit card issuer can raise your interest rate, as well as how much it can be increased. Universal default, the practice of raising your interest rate based on changes to your credit report as opposed to your payment history with the company will be banned. Minors will have only limited access to credit, as opposed to the rampant marketing to college students common in recent years. Companies will be required to give 45 days notice of any changes in credit card terms and allow 21 days as opposed to the current 14 to pay their monthly bills. Two cycle billing is banned, and payments must be applied fairly if various interest rates apply to the account, either prioritizing the highest interest rate or prorating payments in a fair fashion. Consumers will also have the ability to request a return to a lower interest rate after 6 months of timely payments. One of the most important changes for consumers is how banks calculate interest. Today, a raise in interest rates often means that interest is now charged at the new rate on your entire balance. Once these laws are in place, an interest rate change will only apply to charges made after the effective date.

While the overall changes to credit card regulations have been applauded, many critics contend that it is too little, too late. Some Representatives in Congress continue to work for further consumer protections, including the so-called “Credit Card Users Bill of Rights” sponsored by Carolyn Maloney D-NY. The new credit card rules take effect gradually, in small steps. There are significant concerns that banks will use this window of time to levy additional interest hikes against their customers. The American Banker’s Association argues that these regulations will penalize responsible credit card users and make credit less accessible. Consumers today should be aware that credit card companies are apt to use the intervening time before these regulations are fully in place to make changes to your credit card terms. Watch your credit cards carefully for changes in your terms or interest rates.

The Feds are watching rates in 2009

On July 9, 2009 the Senate Banking Committee Chairman Chris Dodd (D-CT)  instructed the Federal Reserve to notify banks that the review requirements for interest hikes would apply to all interest hikes after January 1, 2009. This is good news for consumers worried about interest rate hikes during the course of 2009.