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New credit card rules end unfair treatment to consumers

December 18, 2008

Federal regulators on Thursday approved sweeping new rules for the credit card industry that will protect consumers from increases in interest rates on existing account balances. The rules, which take effect in July 2010, will allow credit card companies to raise interest rates only on new credit cards and future purchases or advances, rather than on current balances.

The changes mark the most sweeping clampdown on the credit card industry in decades and are aimed at protecting consumers from arbitrary hikes in interest rates or inadequate time provided to pay the bills.

The new rules also restrict such lender practices as allocating all payments to balances with lower interest rates when a borrower has balances with different rates. Credit card lenders will be required to apply any payment above the minimum to the part of the balance with the highest interest rate.

In addition, consumers will have to be given 45 days notice before any changes are made to the terms of an account, including slapping on a higher penalty rate for missing payments or paying bills late. Under current rules, companies in most cases give 15 days notice before making certain changes to the terms of an account.

The rules cap upfront fee of sub-prime cards at 50 percent of the credit limit and allow the cardholder to pay off the initial balance over a year, not immediately. The sub-prime cards for people with low credit scores typically have no more than a $500 credit limit but require a large upfront fee. The changes could also make it more difficult for millions of people with bad credit to get the sub-prime card carrying higher interest rates.

  • The new rules prohibit:
  • Placing unfair time constraints on payments. A payment could not be deemed late unless the borrower is given a reasonable period of time, such as 21 days, to pay.
  • Placing too-high fees for exceeding the credit limit solely because of a hold placed on the account.
  • Unfairly computing balances in a computing tactic known as double-cycle billing.
  • Unfairly adding security deposits and fees for issuing credit or making it available.
  • Making deceptive offers of credit.

Credit card debt held by U.S. consumers is about $850 billion, some four times what it was in 1990, according to an estimate by the Consumer Federation.

In the U.S. approximately 16,000 companies issue credit cards. The largest lenders include Discover Financial Services LLC, Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Capital One Financial Corp., American Express Co. and HSBC Holdings.

2 Comments leave one →
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