Financial Team

Signed into law over a year ago, the credit card bill of rights was touted as protection against practices and fees imposed by credit card issuers on to consumers and which have long been considered arbitrary. Just to refresh your memory, banks must practice the following:

- No more arbitrary rate increases: cardholders must be notified prior to such a move.

- Periodic reviews and reduction of a cardholder’s annual percentage rate (APR) where it is warranted or requested: reviews should take place every 6 months.

- Allocate payments fairly: payments made should go towards balances accruing higher interest.

- No universal default: a cardholder cannot be penalized on Card B should he/she default on Card A.

- No double-cycle billing: banks cannot charge late fees on payment that has been made for a previous billing cycle.

- No phone-payment surcharge

- Elimination of due date gimmicks: payment made by 5 p.m. EST on the due date is to be considered punctual and not subject to late fees.

- Sufficient duration to make payment: cardholders have 21 days, instead of 14, in which to make payment.

- Disclose the pitfalls of minimum payments: cardholders must be educated with regards to the total cost in interest and time that results when only the minimum amount is paid.

- Stricter issuance conditions for under-21 cardholders: a co-signer or proof of ability to repay is needed before a card is issued.

The mood preceding the passage of the bill was critical and largely negative. Shortly after it was passed, credit card issuers immediately took steps to cushion the future blow against their bottom line. “Suddenly”, people were complaining that their balance transfer fees had jumped from 3% to 5%, and obtaining a credit card wasn’t the cakewalk it used to be as banks reduced grace periods for payment, increased fees on balance transfers, cut credit lines, and, as most consumers expected, jacked up APRs.

This last move must have hurt the most, as banks could raise their rates until the laws took effect in February. Following implementation of the new limits, the APR must decrease following 6 months of punctual payments. For those with a short memory, it may look as if banks are doing us a favor. In reality, they’re just screwing us out of less money than they used to.

Critics of the new law insist that it is directly to blame for the consumers’ misery of having to pay a higher minimum amount on their balance as well. If you look at it another way, though, it forces a person to rethink their spending in order to make payments on time and reduce the debt owed. You would think it was a good thing too, considering the Federal Reserve has stated that the country is wallowing in trillions of dollars’ worth of debt.

Banks have also drawn parallels to the United Kingdom’s effort to reduce credit card default fees in 2006, which basically resulted in a massive number of applicants being denied a credit card. The idea that this is a bad thing is just mind boggling. Yes, a credit card might sound essential to start up that incredible business idea of yours, but really, wouldn’t you be better off improving your credit score first? If Bill Gates didn’t need one, neither should you (but that’s probably just me).

Think about it – when they were first introduced, credit cards were promoted as an easier way to make payments, particularly on big purchases. Now, they’ve become a means of spending money that isn’t even in the bank yet! I don’t know about you, but being charged interest just to use my own money is something I find disagreeable. In fact, with a Nilson report estimating that there were in excess of 700 million credit cards (more than one for each man, woman and child!) being used in the US in 2008, this is a chance to evaluate what we really need.

Do I think the bill got it right? With the aim to protect consumers from being further gouged by banks, and to ensure repayment terms are simpler, not labyrinthine, it has sent a clear message to card issuers. Still, there is no safeguard against further interest rate hikes, nor are interest rates subject to capping, which I think is a pertinent issue that must be addressed soon. There are no stipulations against the imposition of further new fees on cardholders as well. I, being a more forgiving sort, would not expect Obama and Co. to get things completely right on the first try. However, I do think it is a significant move in the right direction.

Similar Posts:

• Should You Pay the Tax Man With a Credit Card?
• Types of Credit Card Fees
• What is a Revolving Credit Account?
• How Can I Reduce the Rates on My Credit Cards?
• Balance Transfer Credit Cards

Tags: Card Bill, Credit Card, Credit Card Bill, Right