January 06, 2009
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News: CC Industry's New Restrictions.
The leading credit card lenders are already conforming to some of the new regulations in hopes to defray Congress' plans to introduce even more legislation this year to cover any things missed in the recent plan released by the Treasury Department. Some of the issues addressed in these latest credit card regulations were:
- Deceptive practices will be further prohibited. Contracts must be written that are easy to understand. No hidden meanings with esoteric phrases will be allowed. No hidden clauses. Industry leaders are already implementing these changes with new programs they have launched internally and individually. They are in hopes that the smaller credit card lending companies will comply also so the government doesn't have to step in with further action.
- The Fed has mandated a longer period of time, out at least 45-days before the lender may classify a borrower as being in default. Banks claim that the period allowed must fall within one billing cycle in order to keep with risk protection. The Treasure agrees but Congress does not. This may not be as serious of an issue as the ability to raise interest rates, based on heightened risk, but this is still a serious issue with the industry.
- The Fed has mandated that the lenders hold off longer before classifying consumers in the delinquency status. Government demands that the banks afford reasonable time for the hard-pressed credit card consumers to make payments. Leaders in the industry are already making moves to comply in this area.
- The Fed is limiting rate hikes to only new charges and not to be applied to existing balances. This issue has yet to be addressed individually by the industry.
- The Fed is disallowing ‘universal default' practices. This is where a delinquency on one account will also be applied to all other accounts, as well. Also included are defaults from other types of loans like auto or mortgage.
- The Fed is curtailing the practice of locking consumers into inescapable interest penalties by only applying payments toward the lowest interest rate in accounts that have multiple rates for different reasons.
- The practice of ‘Double-cycle billing' will be curtailed. This is where a consumer is required to pay interest on interest accumulated from prior billing cycles.
- Seeking approval from the government before hiking credit card APRs. This has the effect of restricting credit card lenders from arbitrarily raising interest rates when risk conditions heighten. The banks contend that the dynamic risk balance depends on this protection.