The rules would limit fees for late payments and for exceeding a card's credit limit. Basically, the fee couldn't be higher than the value of the violation. For example, the fee for failing to make a minimum payment of $20 couldn't be more than $20.This is great. I'm sure there are people who apply for a credit card to get a discount for a small item, forget they have the card or forget to pay it off, and eventually this one time late payment balloons with fees to be three times whatever was originally on the card. It also bans inactivity fees, fees put on the card as a penalty for the consumer not using it. This compounds the issue, lets say you paid off the balance of the store credit card and kept it for the sake of a good credit score and emergencies. You later find a bill from them stating that you are late on a payment on that supposedly zeroed out card, and must pay another fee. The credit card put an inactivity fee on your bill, then waited a month for you to no pay it so that they could charge you another fee. Up until February of this year it was legal, but unscrupulous and, since credit card companies make a lot of money off of fees, a favored way of maximizing income. The Fed announcement is part of their new position under that law.
The other way that Credit card companies get money is through charging interest on balances not paid in full. Lately their reaction to the declining economy is to raise their interests rates, which is some ways a gamble as they are expecting their customers to pay back their balance, plus that newly risen interest, without going bankrupt or shuffling their debt into another, less costly account. High credit card interest rates are bad for consumers.Who wants to spend money when you're facing an ever increasing pile of debt? The Fed wants people to spend again, and states:that it will:
- Require credit card issuers to inform consumers of the reasons for increases in rates.
- Require issuers that have increased rates since January 1, 2009 to evaluate whether the reasons for the increase have changed and, if appropriate, to reduce the rate.
"Who decides if it's appropriate?"If the companies are expected to police themselves after they have been cut off from the revenue generated from hidden fees, I doubt it will be effective in any way shape or form. But the question remains: Who should determine the circumstances of a rate reduction?
These new requirements seem fantastic on paper, but I doubt too much actual good will come of them. People will make a fuss no matter if there is an "appropriate" reason for raising rates or not. As for who evaluates whether raises in rates are appropriate or not, it can't possibly be expected to work unless the evaluation is done by a third party.
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Theoretically the consumer will decide if a rate is too high by switching to another credit card. However, this requires prefect, or at least good, information. I think that the legislation aimed at forcing credit cards to tell people about the imcrease in rates is trying to promote this information. The interest rate on a credit card is its price. If there are enough credit companies than the interest rate will adjust to meet demand.
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Like with health care reform, the limited reforms suggested are not set to take immediate effect. This results in companies greatly increasing what they ask of consumers prior to new regulations are in effect(be they interest rates on a credit card or deductibles on insurance). Seeing as the regulation being instituted these days is purely a cap on the rate of increase rather than a hard cap on how much they can fleece out of the consumer, the American people don't exactly get as much out of regulation as they should.
ReplyDeleteTheoretically, consumers are going to be able to go to a competitor that doesn't feel like exploiting their customer base, but there are a great number of impediments to the transition to a different company. Assuming, of course, that every other competitor hasn't hopped on the bandwagon and offers just as horrible a product.
I still remember we talk about the big banks and small local bank before. The reason why people choose samll local bank instead because the small banks offer low rate, and better service compare to those famous, large banks. As a consumer, pay less to get more benefits would be good for us. This competitive market will also improve the banks' service and the rate of different banks to attract consumers. A
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