Credit Card Act: What It Means For You
Back in May 2009 the Senate passed a credit card reform bill designed to change credit card industry practices in favor of cardholders. The bill will curb credit card rate increases and excessive fees. Once the new credit card reform bill becomes law, the credit card behemoths will have nine months to change their business practices. The credit card act will have numerous benefits for the consumer. Some of the major changes would include:
- Credit card companies will be required to post their credit card agreements on the internet and allow cardholders to pay their bills online or over the phone without an added fee. (Thank goodness for this. I remember times when I called up to pay my bill over the phone, so I could save on postage or a trip to the post office, only to be told that it would cost me $5 or $9 to process.)
- Consumers will be given a chance to spare themselves from over-limit fees incurred when the balance becomes greater than the credit limit. (This one never made any sense to me. If you reach your credit limit, and then attempt to make a purchase that will put you over that limit, why not simply decline that charge?)
- A 45 day notice will be required before interest rates are increased.
- Limiting a practice known as “universal default,” when a lender increases a cardholder’s interest rate on an existing balance because the cardholder is paying late. Under the new legislation, a customer would have to be more than 60 days late on a payment before seeing a rate increase on an existing balance. Further, the credit card company would be required to restore the previous, lower rate after six months if the cardholder pays the minimum balance on time.
Some of these changes are on track to take effect in July 2010.
Taking it further, the Senate credit card reform bill requires that anyone who is under the age of 21, and who may be seeking a credit card, must first prove that they can make payments, or at the very least that a parent or guardian is willing to pay off any debt accrued should they default.
One school of though, coming predominantly from the banks, is that the increase in fees and interest rates is justified by the added risk they experience from lending money to consumers with no collateral. I know where most people’s allegiance would lie, but everyone has their opinion on this.
According to Edward Yingling, president and CEO of the American Bankers Association, “What has been a short-term revolving unsecured loan will now become a medium-term unsecured loan, which is significantly more risky. It is a fundamental rule of lending that an increase in risk means that less credit will be available and that the credit that is available will often have a higher interest rate.”
Do we really need more credit? Some may argue that it makes no sense to restrict credit at a time when most Americans need it most. But this is nothing more than a “band aid” approach. What’s so bad in having less credit available to us? There is obviously a deeper problem here which should be addressed. If we don’t have the money, we shouldn’t spend it.
Click here to read a summary of the Credit Card Reform Bill Legislation.
You can also learn more at creditcardreform.org, or watch this msnbc.com video reporting on these credit card reform bill changes.
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