New Credit Card Regulations

Consumer Friendly Changes Are on the Way

In response to consumer complaints and Congressional pressure, the Office of Thrift Supervision has issued new credit card regulations that are expected to rein in some of the worst abuses lenders are accused of.

These rules have been endorsed by the Federal Reserve and the National Credit Union Administration and will go into effect in July 2010 without the need of Congressional action.

However, the delay has angered many consumer advocacy groups, which likely will push for Congressional action, forcing the rules into effect earlier.

While the changes to the regulations will ostensibly aid consumers, it is expected to cost lenders up to $12 billion a year, so the true consequences of these regulations remain unknown.

Consumers stand to benefit from the following changes

• A payment cannot be deemed late unless the customer is given a "reasonable" time to pay - "reasonable" has yet to be defined
• Double cycle billing will be banned
• Credit card issuers cannot apply payments solely to the lowest APR balances - if your have taken advantage of special low or zero interest offers
• Fees on sub prime cards will be limited
• If you are not more than 30 days behind, banks will not be able to raise interest rates on existing balances - they still can raise rates on new purchases and cash advances
• Banks will be banned from making deceptive offers of credit
• Finally, banks will have to give their customers 45 days notice before making changes to the terms of the credit card agreement

While much of this is long overdue - especially in view of high profile cases involving Citibank and American Express arbitrarily raising interest rates on long term customers who were not late in their payments or over their credit limits, the flip side of all this is what it will cost card holders in the long run.

Banking experts expect that these rules will cause issuers to make credit harder to come by, by being more picky in who will receive a credit card. Zero and low interest offers might disappear altogether and sub prime borrowers might not be able to get a card at all.

As the chaos of the last few months have taught us, there has been too much reliance on credit by American consumers. It appears that the entire financial world was one big house of cards that came blowing down quicker than anyone expected.

Now it is bailout time and the list of those who claim to be suddenly on the brink is truly shocking and disgusting.

Those of us who saved and invested have seen a large part of those savings evaporate. The sudden, massive infusion of money into the system will inevitably lead to higher inflation and a much cheapened dollar.

And the final insult is that the prudent will face massive tax increases to bail out the profligate.

Welcome to the new world of a US socialized financial system, where the government owns and controls all.

Congress Acts

As many predicted, Congress got itself into the act, passing a law that is essentially the same as the regulations already scheduled to go into effect.

The date has been moved up a few months, but other than that little was changed.

Many consumer advocates allege that Congress caved to the backs because high interest rates were not addressed.

On the other hand, banks claim that, since they will be unable to recoup costs from bad borrowers, the rest of us will make up the shortfall.

This law limits the costs and fees banks can charge to sub-prime borrowers. This will likely mean that most sub-prime credit card offers will disappear.

Undoubtably, it will be harder for even those with fair credit scores to get a regular credit card. Pre-paid cards may be the only option available.

Credit card borrowers that carry a balance, will likely be the hardest hit by these new regulations. Fees such as late charges and overdraft fees will probably rise and interest rates will also be hiked before the law goes into effect.

There has also been indications that grace periods will disappear for all - that interest will run from the date of purchase, even if you pay the card off in full every month.

Other fears are that freebies, like rewards or cash back will be cut or reduced; zero or low interest rates offers will be impossible to find; yearly fees will be imposed; and that credit limits will be reduced or accounts closed.

For the best borrowers, none of this is likely to happen. Even if you do not carry a balance, banks make a lot of money on fees they generate through charging. Also good borrowers have other options, such as paying cash or using a debit card, and can still easily get new and better credit card deals. The competition will not allow major changes to effect this group.

As stated before, those with good - not great - credit, that carry a balance are going to be the sitting ducks.

This is the time for those in that group to get their financial house in order, while options are still available.

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