We Have New Credit Card Rules, but Don't Hold Your Breath
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. It was as if she was announcing that everyone with a credit card just got a bailout.
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, which is 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-end credit," are subject to the Fair Credit Billing Act, which was passed in 1974. It was amended in 1986.
Rep. Carolyn Maloney, D-N.Y., introduced a bill in Congress that would amend the Fair Credit Billing Act once again. It's called the Credit Cardholders' Bill of Rights, and it would stop a lot of the flagrant abuses 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:
--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 the holder is late or does something that breaches the original agreement.
--Card companies will be required to give consumers at least 21 days to make payments before late fees can be imposed.
--Two-cycle billing will be banned.
--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 proportionately 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 scrambling already 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.
Mary Hunt is the founder of DebtProofLiving.com and author of 17 books, including "Debt-Proof Living." You can e-mail her at mary@everydaycheapskate.com, or write to Everyday Cheapskate, P.O. Box 2135, Paramount, CA 90723. To find out more about Mary Hunt and read her past columns, please visit the Creators Syndicate Web page at www.creators.com.
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