Although the Federal Reserve has taken steps to protect the right of the consumers by approving new rules for credit card industry, the new rules still have shortcomings which proved to be disadvantages to certain consumers in certain circumstances.
No Control over Credit Limit Cuts
While the new credit card loss have new rules regarding how a credit card issuer can increase the interest rate on a credit card including an advance 45 day notice the consumer, there is no rule governing the credit limit cuts. Without a forewarning from the creditor, a sudden reduction in the credit limit can cause a consumer to go over the credit limit and incur penalty fees. A reduction in the credit limit can also cause an increase in the credit utilization of a consumer which is bad for the credit rating.
Sub-Prime Credit Card Fees Are Still High
According to the new credit card laws a lender can only charge 50% of the credit limit as a fee on a sub-prime credit card. 50% on a credit card with the credit limit of $700 is still very high as it comes to $350. However the impact of this has been softened because the new credit card law is required lender to charge the fee gradually over several billing cycles.
Approval process is tougher For People with Low Credit Scores
Since certain restrictions have been placed on how and when a creditor can increase interest rate on credit card, the creditors have resorted to making the approval process more stringent. Since they cannot compensate for the additional risk by charging a higher rate of interest they do so by being more choosy about whom they approved for credit. This means that people with a sub-prime credit score will find it even more difficult to get approved for a credit card.
Not Enough Control on the Interest Rate
While the universal default has been dealt with to a certain extent, the restrictions placed on the creditors to monitor hikes in interest rate are not cumulative in its approach. While creditors can no longer surprise their consumers by increasing the interest rate without notifying them or by increasing it in the first year of the credit card, they can still increase it to whatever the deem necessary after giving you such a notice or after the first year is over. The new credit card laws are not very restrictive in this department.
No limits on penalty rate increases
There is now limit on how much the creditor can increase the rate on a credit card. There are some states that have laws regarding this at credit card issuers usually sideline is lost by locating their businesses in states where the interest rate laws are more relaxed.