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Starting in July 2010 the federal government’s protection rules
for credit card consumers will take effect. However the banking industry
claims that the new rules will cost them $10 billion a year, costs that
they will have to pass on to consumers. However consumer advocate groups
are praising the reforms.
The wide reaching new rules for the credit card industry will protect
card holders from arbitrary increases in interest rates and require
adequate time for the paying of bills. Credit card companies will only
be allowed to raise rates on future purchases instead of on current
balances.
The new rules also restrict such shady lender practices as allocation
all payments to balances with lower interest rates instead of putting
it towards the higher rates when a borrower has a balance with different
rates. The new rules could also make it harder for people with bad credit
scores (FICO scores) to get a subprime card. These subprime cards carry
high interest rates and can cause troubled borrowers to become buried
by high interest rates and balances.
The regulations also restrict lenders from putting unfair time constraints
on payments. A payment could not be deemed late unless the borrower
is given a reasonable period of time to make payments, such as 21 days.
Credit card companies won’t be able to place too-high fees for
exceeding the credit limit solely because of a hold placed on the account
after the new regulations take effect. Other restrictions will make
unfair practices like “double-cycle” billing or adding arbitrary
fees for issuing or making credit available.
Additionally, consumers will be given at least 45 days notice before
any changes can be made to the terms and conditions of an account. This
includes a ban on the current practice of slapping on a higher penalty
rate for missed or late payments with little or no warning.
All in all, only the banking industry (and their extremely powerful
lobby) is complaining about the new regulations while consumer advocates
have praised the reform. Possibly the only part of the new regulations
that they don’t like is its timing, some feel it’s too bad
the Fed is giving credit card issuers so much time to comply with the
new regulations. Many believe that the credit card issuers shot themselves
in the foot by greatly increasing good borrower’s interest rates
without warning during the banking crisis. Some borrowers found their
rates being hiked up two or three times what they were previously. I
think they call that "getting their come up ins".
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