The New Credit Card Law

The unfair credit card rate hikes was just one of the issues why the new credit card law was created and implemented.  Though advocates for consumer rights are still seeking for more consumer protection law and say that the new law is insufficient or might even bring about more difficulties to people who seek to get credit cards or people who are already credit card holders.

Presently, credit card consumers who suffer the most are those considered “risky” due to the high interest rates and fees being slapped on them.  The reason given by lenders is that customers belonging to the “risk” group are the ones who are prone to be at risk of loan default and raising fees and interest rates are their only “guarantee” to get repaid.  The new law will present restrictions that will somehow reduce this kind of practice but there are also some revived regulations that could be taken advantage.

One of the new yet not so new regulations are the annual fees which was removed a decade ago.  Even if annual fees have already been included to a considerable number of statements, all credit card holders will now have to deal with annual fees. 

Ways to create added revenue were also created by some credit companies.  One of which is known as inactivity fee which can amount up to $20 for those who have refrained from using their credit card for half a year.  Another one is known as processing fee where $1 gets charged to new customers who apply for credit cards and it’s for the processing of paper statement.

Existing fees were also raised and one of them is the balance transfer fee.  From 3 percent to 5 percent, one particular financial institution, JPMorgan Chase, now charges customers who opt to do balance transfers to another provider in an effort to lower their credit card debt.  Customers who want to do balance transfers have no choice but to pay since the only way that an effective balance transfer could take effect is coordination between the old and new provider.

The interest rate last year was just 10.7 percent but the new interest rate was increased to 13.6 percent.  Later this year, base rates will also be increased and this would be a concrete legitimate basis for lenders to raise variable interest rates as well.

The ability to get and keep credit cards is also harder nowadays.  Nowadays, lenders granting credit cards has become more stricter and are doing all sorts of measure to reduce risks.  Due to the financial crisis, not only did banks tighten the way they grant credit, but they also devised a lot of schemes to drive their credit card revenues up.

Credit limits were also cut for millions of people.  An estimated available credit amounting to $1 trillion is said to have been eliminated by doing this.  The most cuts on credit limits that occurred in California and Florida because of the high unemployment rate and housing crisis. 

People should also not be surprised if they are not receiving credit card solicitation in their mail anymore.  Compared to year 2000 up to 2008 which had an average of 2.3 billion solicitations, only a quarter of this figure have been recorded in 2009.

The new law has provided a few restrictions too and getting around these restrictions will be part of many lenders’ strategies.  This is an additional factor why banks will be more reluctant to issue credit cards especially to those who have low credit ratings and low FICO scores.  A good credit rating will be the only full-proof way for someone to be granted a credit card.

This entry was posted on February 27, 2010 at February 27, 2010 and is filed under Miscellaneous Articles. You can follow any responses to this entry through the RSS 2.0 feed.