January 12, 2010
-
Fed Clears Up Credit Card Reform, Pt.1
Benefits don't come without a price.Americans have been hearing about the new credit card reform legislation that will become effective on February 22nd; however, many Americans are not completely clear on how the new law will affect them. Credit card companies were strong opponents of the law and have maintained that in the long run, it will gravely hurt Americans. The Federal Reserve has been working on clarifying the provisions of the law by releasing its final guidelines. Credit card consumers will be happy to learn they will receive some protection against the predatory actions of lenders; however, the benefits will not come without a price.
Beginning February 22nd, credit card companies will be required to write card contract terms and conditions with more clarity and simpler language for understanding. Americans will also be happy to learn that lenders will no longer be able to raise interest rates on their account during the first year after the account is opened. Additionally, lenders will not be able to raise interest rates on existing credit card balances. However, before you begin cheering, it's important to note that most lenders have already changed interest rate terms by switching accounts from a fixed rate to a variable rate. A loophole in the new law allows lenders to adjust rates for variable rates up and down according to changes in prime. Lenders got a jump on the law by making the change prior to the law's enactment date
In the past, credit card companies have allowed over the limit transactions and then imposing stiff penalties and fees on the cardholder for going over the limit. Lenders will no longer be able to do so or to increase the card's limit without first obtaining the cardholder's authorization. Typically, these types of fees are imposed on subprime accounts owned by consumers who are the least capable of paying. One major provision involves lenders who participate in on the spot approval which often occurs at the retailer's point of sale. Read on to learn more on the subject.