USA Credit Card Law Reform

For a long time credit card companies in the United States have been taking advantage of their customers by utilizing a number of unfair and under handed business procedures. They make a great deal of profit by charging high penalties and fees, often without making it clear to customers beforehand that these charges may be applied if the customer performs a specific action.

They also increase their profits by making sudden and non-disclosed raises on cardholder’s interest rates. These interest rate increases can be applied to customer’s accounts retroactively. So when you signed up for a contract with a specific credit card company, you agreed to pay 10% interest on any purchases you made, but 6 months later the company suddenly tells you that you will now be paying 20% interest.

Credit card companies also make larger profits by targeting sub-prime, low credit limit customers and younger cardholders with deceptive and unfair practises. In order to combat these manoeuvres by the credit card companies, the United States government signed new regulations laws into effect in 2009.

Regulations Under The New Act

These new government regulations will have a number of effects on how credit card companies can operate. Most of these will be very beneficial to the average credit card holder. It is estimated that Americans have spent over $15 billion in credit card penalties. The new laws will focus on providing credit card consumers with more protection from certain practises. It will not remove the credit card company’s ability to charge interest rates, penalties and fees, but it will help to make sure that customers fully understand how these fees and penalties will be applied. It will also get rid of a bunch of unfair rules enforced by credit card issuers.

The new laws hope to make credit card users feel more comfortable with the rules imposed by credit card companies. In the past companies that issue credit cards have made finding out information about how penalties and fees will be charged difficult. From now on these companies will have to disclose information about their regulations in a more straightforward and easy to understand way. Credit card contracts will be re-written to contain clearer language and these contracts will now be available online for people to view anytime. This will also make it easier for government regulators to keep track of how credit card companies are operating. Card issuers will also have to make sure that customers understand the responsibilities of using the card. They will have to clearly show how long it will take to pay off a debt at a certain interest rate.

Another way that card companies cheat their customers is to suddenly raise interest rates and then charge these rate increases to accounts retroactively. From now on card issuers will not be able to raise your rates unless they give you 45 days notice. They will also not be able to charge rate increases retroactively to you unless you are 60 days overdue on payment. They will also have to start giving you more time to make payments, so they will have to start sending out bills at least 21 days before payment is due.

Credit card companies will also have to allow you to opt-in to going over your spending limit, so that they can’t charge you with hidden fees for over-drawing the account. Also, any extra payments you make will have to go to higher interest balance first now. Before card companies would charge payments to lower interest balances first and leave higher interest balances sitting.

Other new regulations that the government will be enforcing on credit card companies include reduced fees for sub-prime and low credit limit cards, no more inactivity’s fees for gift cards or store credit cards, unless the account is inactive for at least 12 months and people under 21 will now require a co-signer or proof of independent income to sign up for credit cards. This will keep companies from taking advantage of college students and younger customers.

More Accountability

Credit card companies will also now be under more scrutiny from the government. Government regulators will be keeping a much closer eye on how credit card issuers are working. These government regulators will be required to observe card companies to ensure they are following the new rules and will have to report to Congress once a year to ensure they are staying up to date on the situation. Credit card companies will also now be issued much higher fines for breaking these new laws.

Costs Associated With The New Laws

Because these new regulations will eliminate many of the ways that credit card issuers earn money from customers, the results will be higher costs associated with other aspects of credit cards. An example of this will be higher interest rates for new cardholders and older accounts. Older accounts will not be charged these higher interest rates retroactively but after 45 days notice they could be charged more. There will also most likely be no more annual fee free cards because companies need to make up that revenue. Other costs will include no more interest grace periods for new cardholders, tighter holds on credit limits being offered and trimming of rewards and bonus offers made by credit card companies. Overall, the results of these new regulations will be cost increases associated with every aspect of credit cards.

While these new government imposed regulations will make it cost more to use credit cards, these rises in price should not have too much affect on the responsible credit card holder. These regulations will help to prevent people from getting into credit card debt, but they will not stop it from occurring. It is still up to the card-holder to understand how credit works and to use their credit cards responsibly. In order to prevent problems with your credit card you should always pay off your monthly balance on time, pay more than the minimum amount due and do not use more than 1% of your credit limit.

Timothy Ng lives, breathes, and sleeps personal finance! Check out his in-depth guide to doing a balance transfer where he answers everything you need to know to help reduce your credit card debt.