New Credit Card Rules Crack Down on the Lenders

The proposed in 2007 better disclosure laws for credit card terms were not enough, as was indicated by consumers' comments. This has led to the new and broader regulations proposed by the Federal Reserve in May 2008 which are coming into force, cracking down on the lenders predatory policies of arbitrary interest rates and excessive fees. The American Bankers Association representatives, as well as all major US banks, are growing uneasy about the inevitable revenue drop they'll incur as a result of the stricter legislation. They warn the Fed and scary customers with unintended impact on lending prices, meaning that once they cannot overcharge high-risk customers, they will shift all the costs on customers who can and will pay. They say to apply for credit will become much more expensive and less available.

Let's outline the basic points of the new legislation that is so salutary for consumers and so unprofitable for the lenders. While it is not avowed, the new rules will control the prices. Now banks can apply increased interest rates only if the customer is more than 30 days late with minimum monthly payments. This rule excludes cases of introductory rates expiration and a change in the variable stated. It means that if your card has a variable APR, you are not protected against a sudden hike in it.

Also, as stated in the agreement with the company, after 6, 12 or 15 months of the introductory period, your 0 or low interest rate will also go up in accordance with the terms and conditions. In all other instances, you cannot be subject to arbitrary interest rates increase. Evaluate how much in interest collections the banks and companies will lose.

The Federal Reserve will also prohibit lenders from applying payments to the lowest rate balances first. Instead, the highest rate debt will be paid in the first place, reducing the period of payments and amount of interest paid to the bank in the end.

The so unfair double cycle billing would also be eliminated, discharging consumers from interest payments on already repaid balances. Another source of revenue cut.

The proposal made by Senator C.J. Dodd would also eliminate charges for making payments online, by mail or phone. One of his most radical bills would reduce or even prohibit marketing of credit offers to young adults under 21.

All these changes together with better disclosure laws are meant to help consumers manage their debts and use credit laws to their advantage. Time will show if it's of any use. But as far as major banks and ABA are concerned, they know the effect beforehand. As their forecast goes, the financing of popular promotion programs will be cut off. 0% intro APR or low ongoing APRs on balance transfers may disappear, as well as best credit rewards such as miles and cash back may become less available. This is the price of the new, consumer-oriented legislation proposed by the House, Senate and Federal Reserve.

While most customers, whose wallets and life have been damaged by unmanageable debts agree to pay it, a financial specialist Mr. Levitin, thinks the new rules are not enough restrictive and can only initiate heater competition with some new strategies of making revenues to follow.

Share Opinion: