Credit Card Companies Forced to Play Fair

Credit card issuers are being forced to play by a fairer set of rules by the Credit Card Act passed by Congress. Additionally, the financial overhaul bill signed by Obama entitles consumers to more disclosures about the credit approval process, as well as restricting credit card rates and fees. Institutions are finally being forced to be more open and accountable to consumers. But it’s not all good news for consumers.

“Don’t expect these credit card companies to accept smaller profits, just because the government has changed the rules of the game” says J. Vincent Burr, founder of the anti-Chase Bank blog, Chase-Sucks.com. “The Credit card Act legislation was introduced in 2007, so their lawyers have been working on exploiting loopholes and adding new revenue streams for the last 3 years in anticipation of these laws.”

Some of these new revenue streams include draconian overdraft fees on debit cards. “Do not opt-in to this so-called overdraft protection being offered by banks like Chase. To offset some of the losses by their credit card divisions due to these new rules, they plan to hit people with $35 fees every time you pull more money than is available in your account. This is being sold as a service to customers, but in reality it is akin to financial rape.” says Mr. Burr. “As long as you don’t opt-in, if you try to use your debit card without available funds the transaction simply won’t be processed. However, if you opt-in to the so-called protection, and you go over on something as small as a $2 cup of coffee, that coffee will end up costing you almost $40.”

The Credit Card Accountability Responsibility and Disclosure Act, as it is formally known requires card issuers to give consumers 45 days notice before changing rates or fees. It also requires information to be added to statements indicating how long it would take you to pay down your debt if you’re only making minimum payments, and how much it would cost with interest if you pay only minimum payments. This is good, but will probably not make a huge difference since many people realize how irresponsible it is to carry these debts long terms, but many people delude themselves into thinking that they’re going to get some financial windfall that will allow them to pay it off sooner than they will realistically be able to do. Consumers will also be allowed one free credit score per year, much like the one free credit report now provided.

One of the biggest loopholes closed has been the practice by credit card companies of applying payments to balances with the lowest interest rate first. As often happens with promotional rates and balance transfers, consumers may owe their balance at several different APR’s and these will now be paid down in order of highest interest rate first, which should help considerably. Often times, consumers have a balance at 0% that gets paid down first, while their balance at 24.99% is carried indefinitely racking up the finance charges, so this practice will no longer be allowed.

Another huge loophole closed and one that should have been made illegal years ago, was the process of raising interest rates on past purchases. If you charged $2,000 worth of furniture on a credit card at what you believed to be 9.9%, and you calculated that you could afford the debt at that rate, you would be surprised to find that the credit card company could then raise your rate and charge you 24.99% or higher on that same purchase after you already agreed to buy it at 9.99% interest. This practice is no longer allowed. If you rate is raised, it is only applied to new purchases after the rate goes into effect.

Some of the other  fees you can expect to be increased to offset the losses brought on by these changes include higher annual fees, balance transfer fees and cash advance fees. One thing is for certain, despite the well-meaning intentions behind the new regulations, the banks will not accept making less money and the costs will be passed on to consumers in one way or another.