New Credit Law-Too Much Too Late?
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When President Obama signed the Credit Card Bill of Rights last May he signaled a new era in how banks do business. The final law was a compromise between the House bill and the stricter Senate version and is designed to change the way credit card companies bill their customers.
The new law addresses billing practices that consumers have been constantly complaining about. Many of the perceived unfair fees will be eliminated. However, the bill does not take effect until February 2010 giving banks some time to scramble and come up with new ideas for revenue. Here are the highlights of the new law:
Increases in interest rates cannot be applied to existing balances. This means that when banks announce a new increased rate on a consumers's account, it can only apply on purchases and transactions going forward. Rate increases can not be applied to balances already on the account. This represents one of the banks' major source of revenue.
The practice of double cycle billing will be prohibited. Today banks base their interest rate on the balances of the past two months even if the previous month has been paid in full. In essence they were charging a second time for the previous month. This practice ends in February.
No more over the limit fees. Today, if a consumer is near his credit limit and makes a purchase that puts him over the limit, the bank will honor the charge but will hit the consumer with a hefty over the limit fee that the consumer usually isn't aware of until he gets his statement. The new law would prohibit this practice unless the consumer explicitly requests it. Now if the consumer goes over the limit the card will simply be disapproved and the charge will not go through.
No more applying payments to the lowest interest rate first. If the consumer has multiple interest rates (promotional, transfer, purchases etc) the amount of the payment that is over the minimum payment due will be applied to the highest interest rate rather than the lowest as is currently the practice.
Consumers can not be charged a fee for paying their bill. Some cards charge the consumer for making their payment by other than mail. Charging for paying online or by phone or electronic transfer will not be permitted when the bill becomes active.
Credit cards for minors will be more difficult to issue. Kiddie cards and cards for college students will be much tougher to issue. Persons under 21 have to be able to demonstrate that they have the means to repay their credit card bill or have their parents co-sign for them. There are other restrictions as well including locking in interest rates for 12 months, but those listed above are the ones that will have significant impact on a bank's income.
Being for profit organizations and seeing many of their fees and billing practices being reigned in, Banks have to find new ways to generate revenue. They predict, among other things, that the credit markets will become exceptionally tight and the new regulation will do more to harm the American credit system than help it. Here are a few of their predictions:
Charging for credit cards Not surprisingly, a return to credit card charges is a real possibility. They are easy to implement and it is almost guaranteed that all the issuers will go this route to one degree or another. The bank industry is predicting charges to be in the $50 to $100 per year range.
Tightening of credit. Banks have suffered their biggest default rates ever, and as a result predict it will become ever more difficult to qualify for credit and limits will be significantly lower. (Editor's note: Does this mean they will only issue cards to people that have demonstrated they can handle credit responsibly rather than mass market to anyone who is breathing? DUH)
Rewards plans go on a diet Promotional rewards plans cost 1% of credit card balances and will probably be trimmed if not eliminated. This may be a temporary condition as the economy shakes out. A year from now, cards will have to become more competitive because the only people with cards with significant limits will be people with excellent credit.
Higher check and balance transfer feesBank of America and Discover are already contemplating increasing their fees for balance transfers. Banks anticipate a flurry of transfers to lower interest accounts and this is another way to pick up revenue.
The new law does not kick in until February 2010 so consumers should brace for another round of rate increases on their current cards. In addition, credit limits will most likely be reduced regardless of history. Over the long run, this law will make banks more reponsible in their lending and competitive. However, in the immediate future, many consumers will sit by helplessly and watch their balances grow as interest rates outpace their ability to pay the balnce down.
Article Source: Articlelogy.com
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