Posts Tagged ‘Interest Charges’

A final rule was laid out Tuesday aimed at protecting consumers from misleading and predatory credit card practices.

The US Federal Reserve has set forth a final rule to implement provisions of the Credit Card Act, which was enacted in May last year that will enhance previous regulations barring unfair practices, such as abrupt interest rate increases, and improving disclosures to cardholders.

“The rule bans several harmful practices and requires greater transparency in the disclosure of the terms and conditions of credit card accounts,” Federal Reserve Governor Elizabeth Duke said in a statement.

The rule prohibits interest rate increases one year after the credit card account is opened. After the initial year, issuers should give cardholders a 45-day notice before increasing rates.

This rule also bans hikes applicable to existing balances, such those of cardholders who are behind in payments.

It also requires creditors to first seek a cardholder’s approval before charging them for transactions that exceed their credit limit.

It also puts a cap on exorbitant fees associated with subprime accounts.

In addition, the rule prohibits “two-cycle” billing, which allows creditors to impose additional interest charges.

Under the rule, creditors must give uniform due dates to consumers each month, eliminating confusing cut-off times that lead to missed payments and jacked up rates. Companies who have complied with the rule have started mailing bills to customers 21 days before the due date, which has increased from 14 previously.

“These rules — the most comprehensive ever seen — herald a new era for America’s credit card customers,” Kenneth Clayton of the American Bankers Association told the Associated Press. “It really does put consumers in the driver’s seat,” he said.

The rule helps customers settle credit card dues faster and even more cheaply, as payments are first applied to highest interest-rate balances.

This landmark ruling is part of the Feds’ second implementation of the 2009 Credit Card Act. The first came in August last year, three months after the act was signed into law by President Obama in May 2009. Obama called the law’s provisions as “common sense” reforms made to “protect consumers.”

Initial amendments to Feds’ first adopted regulations in December 2008 took effect on August 20, 2009.

These provisions included one that bars creditors from issuing cards to those under the age of 21 unless they provide documented proof of their ability to pay. If not, a signature of a parent or any other responsible co-signer is required.

Creditors must comply with the Fed ruling by February 22.

Some of the US’ leading credit card issuers include American Express, JP Morgan Chase, Citigroup, Bank of America, and Capital One Financial.

Writer: Gerry

With several other laws of the Credit Card Act still yet to come into full effect until February 2010, credit card companies are projected to cost millions of dollars in projected profits. Thus, for customers in the midst of the Christmas season, consumer groups urge credit card holders to be wary of last minute hikes in their interest rates.

Though such a reaction to the holiday shopping spree is the best that companies can do to compensate for their losses within legal boundaries, Montrice Godard Yakimov, Managing Director of the Office of Thrift Supervision under the US Department of the Treasury, in a memo released after President Obama’s approval of the Credit Card Act, warns against unfair practices which companies in the past were found guilty of.

Yakimov expressed that while the government requires that “consumers receive a reasonable amount of time to make their credit card payments”, guilty parties were found to have “prohibited payment allocation methods that unfairly maximize interest charges and, in the subprime credit card market, limited fees that reduce the credit available to consumers.”

Yakimov urged CEOs of credit companies that consumers with a track record of paying credit card bills on time should be given the incentive of not raising the interest rate on an existing credit card balance. This recommendation may be easier said than done.

Since President Barack Obama signed the Credit Card Act into law in May to safeguard consumer rights against deceptive and unfair arrangements, especially for credit card holders and interested applicants, the policy has been met with lesser customer-friendly policies coming from the credit card companies themselves.

Since mid-August, companies which issue credit cards reacted to the policy with stricter policies against provisions such as the requirement that issuers provide 21 days for consumers to pay their credit card bills, and the requirement that issuers provide 45 days notice of changes in terms.

Time will tell as there are several other key provisions effective on February 22, 2010 in the Credit Card Act are anticipated to either make of break the affected credit companies which may either draw in more volumes of credit card ownerships and more efficient payment or severely increase the difficulty of acquiring new credit cards.

The fill force of the provisions include the following: (1) enhanced disclosure of card terms and conditions, (2) fairness in the timing and application of card payments, (3) responsible lending, (4) restriction of certain fees and interest charge, (5) prevention of unfair increases in interest rates and changes in terms, (6) strengthening oversight of credit card industry practices, (7) safeguards for young people who obtain credit cards, (8) enhanced penalties; and (9) gift card protections.

Writer: Anthony