January 12, 2010
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Fed Clears Up Credit Card Reform, Pt.3
Consumers and IRS become victims.New Fed guidelines will prohibit credit card companies from extending credit to any individual under the age of 21. An exception to the rule would be any individual who could prove that he/she is financially capable of repaying the debt or if the applicant provides a creditworthy co-signer. The rule is aimed at protecting college students who often fall prey to the aggressive marketing strategies of credit card companies. Several states have taken matter into their own hands by further enacting new state laws that put greater restrictions on credit card companies in regard to marketing activities on university and college campuses. The added protections are also a response to recent statistics that indicate college graduates have progressively become more dependent on credit to fund their education and leaving them buried in debt upon graduation.
The rule also addresses the issue of "two-cycle" billing; a common practice by some credit card companies that enable them to charge excess and unfair interest. When a lender uses a two-cycle billing to calculate interest charges, they use two months balance to calculate the average daily balance. Interest charges are calculated on the average daily balance and therefore, a two-billing cycle potentially ends up charging the credit cardholder with higher interest. The consumer actually ends up paying interest on debt that they paid off in the first of the two cycles. Discover Financial has been one of the biggest offenders of the two-cycle billing policy.
Credit card companies are not the only recipients of new Federal rules, consumers will also be required to provide income tax records to lenders as well as authorize the Internal Revenue Service (IRS) to release federal income tax records to them. Overall, it appears that everyone involved in the financial game will be affected by the new rules. It has yet been determined who will benefit the greatest by the law that was originally designed to protect consumers.