by Tricia
This is a guest post from Family Man at Build Tomorrow – Another Day of Life. He’s a married, 35 year old father of three who has some significant debt he is trying to pay off. He gave me this article, and since I don’t always keep up with current events I thought this was a great article to share.
Earlier this year the Federal Reserve proposed new rules for credit card companies. The major issuers immediately spoke out against the proposed rules, claiming that they would result in less competition, higher prices, and less choice for us the average consumer.
So what do these proposed rules mean for you? It first of all means that banks will have less opportunity to make changes to your account for arbitrary reasons. Some of these fundamental changes are as follows.
- Banks wouldn’t be able to hit you with a higher interest rate on debt you already owe.
- Prohibits “two cycle billing.” This is a practice that computes finance charges based on previous billing cycles.
- Banks would have to apply at least a portion of payments toward higher-interest rate debt. In the past issuers put payments consumers made toward cheaper debt, like balance transfers that generally had lower rates.
- Banks would have to provide consumers a reasonable amount of time to make payments.
- Credit Card Holds. The proposal would prohibit banks from imposing a fee when the credit limit is exceeded solely because a hold was placed on available credit. This can occur where the final dollar amount of a transaction was not known in advance (for example, when a consumer checks into a hotel, a hold is placed for the expected cost of the stay).
This potential rulemaking is a huge step in asserting consumer rights in the area of credit. Many at the fed believe this is a necessary step toward recovering the credit market. Will this limit some of the credit available to consumers? Absolutely! Over the last 9 years credit was made so readily available to individuals, that could not afford it, it has become a major contributor to today’s economy. These rules will tighten lending to those who can afford to pay it back. While that may seem more restrictive it is more in line with consumer sentiment.
The Federal Reserve needs your help. Public comments are being requested before August 4, 2008. I plan to post mine. I believe that interest rates should be capped at prime plus 12%. This will allow those in debt to recover, while still allowing banks to make money. As consumers get out of debt, they will have more disposable income, and spend more (cash I hope). If you agree I hope you will make your voice heard.
Go to federalreserve.gov and click on “consumer information” at the top of the page. Then click on “Proposed Rules for Credit Cards and Overdraft Services” and scroll to the bottom of the page. Look for Regulation AA and click on submit a comment.
Direct link here.
Thanks, Family Man for the guest post!
I read about this before. This is great! It is sad, however, that it is taking the government this long to step in and do something about the somewhat predatory practices of credit card companies.
Judging from that bulleted list, that’s the kind of “less competition” and “less choice” I can live with! 😉
@ Twiggers
It is sad that it’s taken this long, but government regulation can only slow down predatory business practice, it can never eliminate it. Those predatory businesses (credit card companies in this case) will always find loop holes. The best defense is becoming financially educated and arming yourself with the knowledge to recognize and avoid such pitfalls when you see them.
I blogged about this on May 2nd. And wrote:
“The industry is already in full swing trying desperately to stop these new rules. They are using the usual tactics. Their most vocal threat is that this could choke off credit. LOL! Not even a new born baby would believe that one. If they don’t lend, especially now with the new rules, they don’t make money. So that argument is just a scare tactic.”
I think this time Congress should get this thing over with and done.
Thanks for this. I went to the link and posted my support of the new rules. I hope that for once the people will be heard.
I agree with Nelson, they are not going to stop giving credit, they are not going to cut off their noses to spite their faces!
I agree w/ Nelson & Pam. It will be business as usual – pumping out plastic to anyone with a pulse.
I love how they try to divide consumers with their typical nonsense scare tactics. The CC Company spin is that the new regulations will hurt “good” customers – the people who pay every month, on-time, and so on and so on. They stop just short of insinuating that only irresponsible borrowers would want something like this to pass. Its ridiculous – anyone who has ever owned a credit card has had to deal with that industry’s shady, underhanded tactics at one time or another.
Don’t fall for it. That entire industry has been allowed to go unchecked for way to long. They have been allowed to bend the rules and change the game as they see fit too many times now and it is only getting worse. The proposed regulations cannot come fast enough. Will it stop them – no way. I’m hoping that it will slow them down a little bit though.
I was going to do a similar article to this but both of you beat me to the punch.
I subscribe to consumer-action.org emails. This morning I received an email that talked about a survey that was done against 41 credit cards from 22 banks. Full details of the survey can be found here. http://www.consumer-action.org/news/articles/2008_credit_card_survey/#Topic_04
I was actually surprised at some of the findings. I think that it is wrong that a credit card company can lower your credit limit without warning and then turn around and charge you over-the-limit fees.
I cross my fingers that none of the horror stories I read about ever happen to me. Most of my $72,000 debt is currently sitting under 10%. If my APR’s were to suddenly jump without notice, it could seriously jeopardize my debt payoff plan.
Here is a recap of what was found during the survey:
* “Anytime, any reason” – 77% of surveyed credit card issuers answered “Yes” to the question “Can you increase my APR or change my terms ‘any time for any reason’?” This includes all top ten issuers – even Citibank which pledges not to change a customer’s terms before the card’s expiration date.
* Shrinking credit limits – Five financial institutions told CA surveyors that they would reduce a cardholder’s credit limit because of perceived customer risk. Factors include: a decline in credit scores, late payments and balances that get too close to the credit limit.
* Factors beyond a consumer’s control – Four of the top ten credit card issuers cited factors beyond a consumer’s control that might cause interest rate increases such as: “market conditions,” “the economy,” and “business strategies.”
I agree wholeheartedly with these changes. The credit card companies are making so much money with their current laundry list of fees that they charge for even the tiniest infraction that they have to try to find a way to make people think that these changes will hurt the consumer. Personally, I really don’t understand how those factors will reduce competition, but I’m only an economics major, not a credit expert.
Great feedback, and also thanks for the guest post. Both the Fed and Congress are looking at this, though the fed may agree to some rules sooner, and then congress follow up. I am a HUGE supporter of capped interest rates, which is not in this proposal, but needs cunsumer push. Without large sweeping changes our econmoy is in for continued trouble.
Thanks again for the guest post!
I think health care reform is a more worthy cause. You can help it if you run up those credit cards, but you can’t help it if you get sick.
Amen to this suggestion of regulation. Shady home loans led to the foreclosure crisis we presently have but subprime loans are child’s play next to credit card lending practices. In fact there is great evidence that lenders are using even shadier practices with credit card practices to make up for the losses sustained in mortgage lending losses! The worst aspect is the penalties one acrues due to missing a payment, even if its by one day. Its no wonder that people decude to pursue a debt settlemetn program rather than fight the unwinnable fight.
It may be fancy to blame the credit card companies for your personal situation, but remember nobody forced you to have credit card debt. Credit card regulations is none of the governments business. The USA in turning into France.
I recently have had some credit problems. I liked my credit cards waaay too much. I think the best thing you can do to recover is to allow yourself enough time to straighten everything all out. Nothing happens overnight, especially fixing a credit score.