There has been a lot of talk about the new Credit CARD Act that took effect on 22-February-2010. There were high hopes among consumers that the new law would rein in the excessive fees that make it difficult to pay off card balances when making minimum payments. Unfortunately the law only goes so far. For many the law is too lax because it does not limit the amount of interest rates and fees that can be added. It only limits when they can be changed.
The Consumers Union has expressed the opinion that the law is an important first step in establishing rules that limit the credit card company’s ability to use tricks to capture consumers in unmanageable debt. The new law addresses billing, disclosure, marketing to college students, and the infamous introductory offers that come in the mail.
There are things the new law does not address though. The credit card companies can still raise interest rates as high as they want and can add new fees too for opening, closing, or making account changes. They can still reduce account credit limits too without giving the card hold any warning.
A plethora of fees that will show up on consumer accounts are expected. In many cases the addition of new fees started months ago. The financial institutions have been crafty too. For example, Fifth Third Bank began charging $19 when a card is not used for 12 months. In other words, it is a fee for not charging. Banks are charging for printed statements, cash advances, minimum account charges, paying online and more.
The Credit CARD law clearly does not limit fees and that means the credit card companies are free to replace as much of the revenue lost through new regulations as desired with new fees. In the opinion of the Center for Responsible Lending the card issuers are able to do pretty much what they want still.
What else does the new law not do? It does not prevent credit card companies from raising interest rates on new purchases. Though interest rates cannot go up on purchases already mad, the new rates can be as high as the company wants to charge. For example, First Premier Bank offered a credit card with a 79.9 percent interest rate. You have to speculate as to the type of customer who would accept such an exorbitant rate.
The law also does not stop the credit card companies from lowering credit card balances which can lower a credit score. The Credit CARD Act does not apply to business credit cards. That means many small businesses will still face the same problems as before when working with the lenders. The law does instruct the Federal Reserve to study how businesses use credit cards.
The next step according to consumer advocates is to extend the law to include limits on fees and interest rates. Though that could happen, it probably will not happen anytime soon. The credit card companies are already expected to lose revenues during a time when the economy is struggling to recover. It is unlikely Congress will address in the near future what the Credit CARD Act does not do.
Similar Posts:
- Consumers unlikely to shake debt management problems soon
- Consumers unlikely to shake debt management problems soon
- Card industry responding to overdraft criticism
- Consumers Prepare for Credit CARD Act
- Subprime Credit Card Fees Increase As New Law Takes Effect
Recent Comments