The New Credit Card Law
The unfair credit card rate hikes was just one of the reasons why the new credit card law was created and implemented. Consumer advocates, however, are still asking for more consumer protection law and say that the new law is lacking or will bring about more difficulties to people who seek to obtain credit cards or those who are already credit card holders.
At present, ”risky” borrowers gets the most burden because of the high interest rates and fees being slapped on them. Lenders reasons for doing this is that customers belonging to the “risk” range are the ones who have a higher probability to be at risk of loan default and raising their interest rates and fees are ways to accumulate revenue from these types of customers just in case non-payment transpire. This kind of unfair practice by lenders could see some limit with the new law but there are also some new, yet not so new regulations which banks can “modify” to their advantage.
One of the new yet not so new regulations are the annual fees which was removed a decade ago. Even if a considerable percentage of lenders in the US have added annual fees to their borrowers bills even before the new law took effect, this is now something that all credit card consumers will have to deal with from now on.
Further added fees are also created by some credit card issuers. 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 for every paper statement processed, $1 is charged to the consumer.
Balance transfer fee, which has been around for a long time, were also raised. From 3 percent to 5 percent, one particular financial institution, JPMorgan Chase, now charges customers who wants to lower their rates by transferring their current balance from another bank or financial institution. Customers who want to do balance transfers would have to pay for it 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. The increase in base rates is also expected to rise later on and this would obviously raise the variable interest rates both on savings and credit cards.
Lots of credit card holders may also experience a harder time in keeping credit cards and getting new credit cards will also be the same. Banks these days are more cautious in issuing credit cards and are doing all sorts of measure to reduce risks. Because of the financial crisis, not only did banks tighten the way they grant credit, but they also devised lots of schemes to get more revenue from their credit cards.
Credit limits were also cut for millions of people. An estimated $1 trillion amount of available credit is said to have been eliminated by doing this. California and Florida are two states that were the most subjected to credit limit cuts due to 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.
A few restrictions have been added to the new credit card law as well and a good number banks will surely discover some ways to get around it. 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 approved a credit card.