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.
The Credit Card Accountability Responsibility and Disclosure Act is a new law that comes into effect on February 22, 2010. This law changes certain rules and conditions about credit cards obtaining to teenagers below 21 years of age. It has been estimated that an average College student carries a debt of $3000 on their credit card. A steady is also estimated that some freshman students and College graduates will end up with more than $8000 on the credit card when they leave college.
Here are the certain rules and regulations that have been brought about by the Credit Card Accountability Responsibility and Disclosure Act Of 2010.
No Approval over Telephone
This rule means that a credit card cannot be approved for a person under the age of 21 over the telephone. Everyone under the age of 21 must write a written application for a credit card.
Teenagers Must Prove Income or Have a Cosigner
Not only do teenage is required to put an application for a credit card in writing but they must also present proof of income or have a cosigner who is offered legally adult age above 21 and someone who can take responsibility for making the payment on the credit card on the behalf of the teenager. Such a cosigner can be a parent, guardian, spouse, aunt, cousin etc.
The credit card issuers are required to take a written approval from a cosigner on the credit card that has been co-signed. This allows a cosigner is to lower the credit limit to prevent high balances.
Restrictions on Campus Credit Card Marketing
Credit card companies are known to target fresh College students for their credit cards by advertising and marketing themselves on a close to college campuses. Credit card companies love to recruit new student is as their customers is not only do they stand the chance to win a loyal customer for a lifetime but also consider them to be safe risk since parents usually stand behind their debts.
They use naive yet simple practices such as offering T-shirts, sandwiches and simple free gifts in order to make the College students signed the credit card application.
The new credit card rules make this practice illegal. Credit card companies cannot offer any tangible item to entice students to apply for credit cards on the campus, near campus or at a College related or College sponsored event. Credit card companies are also not allowed to send preapproved credit card offers to consumers under the age of 21 unless the person has opted to see these offers.
Any company issuing a gift card, gift certificate, or prepaid card is not allowed to charge an inactivity fee unless the gift card has not been used for 12 months. The purchaser must be notified (before purchasing the gift card) that an inactivity fee may be assessed. The amount of the fee must be disclosed ahead of time.
Gift certificate expiration must be five years from the date of purchase or five years from the last date funds were loaded onto the certificate. If the gift card has an expiration date, it must be disclosed prior to purchase of the certificate.
These rules do not apply to reloadable phone cards, reloadable cards that are not marketed as gift cards or gift certificates, cards used in place of tickets for admission to certain events, and paper gift certificates.
Credit card issuers must begin disclosing the cost of making minimum-only payments. Billing statements must include this statement (or something similar to it): “Minimum Payment Warning: Making only the minimum payment will increase the amount of interest you pay and the time it takes to repay your balance.”
The billing statement must include:
· The number of months it would take to repay the balance if only minimum payments are made.
· The total cost of making minimum only payments based on the current interest rate. The billing statement must include the total amount of principle and interest paid.
· The monthly payment required to repay the balance within 36 months along with the total interest and principle paid on a 36-month repayment plan.
· A toll-free number you can call for information about consumer credit counseling.
This information must be displayed in a table where you can read it. It can’t be hidden somewhere on the billing statement where you are unlikely to find it.
Limits on Initial Fees for Subprime Credit Cards
During its first year, any fees charged by a subprime credit card cannot exceed 25% of the credit limit. On a credit card with a $400 credit limit, total fees charged when the credit card is opened cannot be more than $100. This excludes late payment fees, over-the-limit fees, and returned check fees.
No More Universal Default or Double Billing Cycle Finance Charges – CARD Act 2010
Universal Default is banned
Universal default is a clause within your credit card agreement that allows your card issuer to raise your interest rate at any time for any reason. Credit card issuers have used this clause to apply the penalty interest rate when you’ve been late on a payment to another credit card. The CARD Act bans universal default.
Billing Statements Must Include Late Payment Deadlines and Penalties – CARD Act 2010
Double Billing Cycle Finance Charges Are Banned
The double billing cycle method of calculating finance charges is illegal under the CARD Act. Credit card issuers can no longer charge interest on balances from a previous billing cycle. They also cannot charge interest on balances that have already been paid. An exception is made for finance charges on balances that were part of a billing error dispute or a finance charge charged for a returned check.
On credit accounts that charge a late fee for late payment, the billing statement must include the payment due date (or date the late fee will be charged) along with the amount of the late fee. If a late payment will result in an interest rate increase, that fact along with the amount of the interest rate, must be listed on the billing statement. Both pieces of information must appear in a location that the cardholder can find and read them.
Your credit card issuer must mail your billing statement at least 21 days in advance of your due date. You can’t be charged a late fee if your billing statement is not mailed or delivered to you at least 21 days before your credit card payment is due.
You Must Have Time to Pay within the Grace Period
If your credit card balance has a grace period in which you can pay the balance in full and avoid a finance charge, your statement must be mailed or delivered to you at least 21 days before the finance charge would be added to your balance.
Payments Must Be Processed on the Day They’re Received
Any payment received by 5:00 p.m. on the due date is considered on time. Your payment due date should be the same day each month. If your payment due date falls on a holiday, weekend, or another day your card issuer doesn’t accept payments, your payment can be processed on the next business day without any late payment penalty.
If a card issuer accepts payments at a local branch, any payment received at the local branch should be processed on that day.
Above-Minimum Payments Should Be Allocated Fairly
Payments above the minimum should be applied to the highest interest rate balance first, followed by the next highest interest rate, except in the case of a balance with deferred interest. If you have a balance deferred interest, the entire payment will go toward that balance in the last two billing cycles of the promotion.
No Late Fee for Card Issuer Changes
You cannot be charged a late fee if your payment was not processed because your credit card issuer made a change to its mailing address or payment processing procedures. This applies to payments received for up to 60 days after these changes became effective.
No Fee for Method of Payment
Credit card issuers cannot charge a fee based on your payment method unless you have requested an expedited payment that must be handed by a customer service representative.
Credit card issuers are required to give cardholders the opportunity to opt-in to over-the-limit fees. Unless cardholders have expressed they would like over-the-limit transactions to be processed, those transactions that would exceed the credit limit should be denied. Before opting-in, cardholders must be told the amount of the over-the-limit fee. A cardholder who has opted-in to over-the-limit fees has he right to opt-out at any time.
Before it was possible to go over the limit without the consumer realizing it till they got their charges in the next billing cycle.
Limits on Over-the-Limit Fees
An over-the-limit fee can only be charged once in a billing cycle and only for a total of three consecutive billing cycles unless you pay your balance below the credit limit and go over it again or you get a credit limit increase and exceed the new limit.
Credit card issuers can’t increase interest rates on existing balances except in certain situations:
· A promotional interest rate has expired. The credit card issuer must have notified you before the start of the promotional rate how long the promotional rate would last and what the interest rate would be when the promotional rate expired. Promotional rates must last at least six months.
· Your credit card has a variable interest rate that the credit card issuer doesn’t control and can be easily viewed by the general public.
· You finished a hardship program or had a hardship program cancelled. The increased interest rate can’t be higher than what it was before you started the program. Additionally, you must have been notified before the start of the program what the interest rate would be if the program was completed or cancelled.
· You were more than 60 days late on your minimum credit card payment. If your interest rate increases because of late payments, you should receive a notice when the interest rate increases letting you know why the rate increased. If you make your minimum payment on time for the next six months, your card issuer is required to lower your interest rate.
No Rate Increases on New Accounts
If you open a new credit card account, your card issuer cannot raise your interest rate within the first 12 months of your account, except in the situations described above.
Rate Increases Must Be Reviewed Bi-Annually
After an interest rate has been increased, the credit card issuer must review the account every six months to determine whether the rate can be lowered. If the factors that first triggered the interest rate increase have changed, the card issuer must lower the interest rate.
Starting August 20, 2009, credit card issuers must send at least 45-day written advance notice of interest rate increase or other significant credit card changes. Significant changes include increases in any fee or finance charge. Credit cardholders must be notified of their right to reject, or opt-out of, the changes.
No Penalty for Opting-Out
If you decide to opt-out of the credit card changes and close your credit card account, your card issuer can’t charge extra fees because you closed your account, default your account, or require you to pay the balance in full immediately. Your credit card issuer can: increase your monthly payment by up to 100% (double it), require you to repay your balance within five years, or they can leave your repayment plan the same.
No Rate Increases on Existing Balances
Credit card issuers cannot raise your interest rate on existing balances (no retroactive interest rate increases), except in certain situations.
No Advance Notice of Minimum Payment Increases
While the change may seem significant to cardholders, the Federal law does not require credit card issuers to send advance notice of minimum payment increases.