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New Proposed Regulations for Credit Cards

This article was written by in Credit. 15 comments.


As Smithee mentioned earlier this week, the Congress and the White House are both working to introduce legislation to help consumers and curb deceptive techniques practiced by credit card lenders. Yesterday, a committee of representatives interested in financial issues put forth a bill to the rest of the House, the Credit Cardholders’ Bill of Rights Act of 2009. This bill, if signed into law, would increase transparency and eliminate certain interest rate increases.

For this bill to become a law, the Senate would have to approve a similar bill. The two bills, one from the House and one from the Senate, would need to be reconciled by a committee who would reach a compromise.

The bill currently in the House calls for a number of interesting changes to the rules for credit card companies:

1. If the company decides to increase a consumer’s interest rate, the new interest rate would not apply to existing balances, only new activity. The consumer will have an opportunity to refuse the interest rate hike. The account would then be closed to new purchases and the consumer will have at least five years to pay off the existing balance at the old rate. In addition, the minimum payment cannot be more than doubled as a percentage of the balance. Assuming a credit card company would try to circumvent these changes by charging an additional fee, the bill would prevent the company from doing so.

2. The above limitation that prevents the new interest rate being applied to the prior balance disappears if the rate increase was due to an index linked to the interest rate, due to an expiration of a promotional rate, or due to a late customer payment.

3. Credit card companies would need to provide the consumer a notice at least 45 days in advance if they intend to increase the interest rate.

4. Double cycle billing often results in being charged new interest a month after your pay off your balance in full. This occurs because in most credit card agreements, the interest charged is based on the average daily balance over the past two billing periods. Under the terms of this bill, double cycle billing would be prohibited.

5. Every statement would include an amount and instructions for paying off the bill in full.

6. If a consumer can prove that he or she sent a payment seven days or more before the due date, the payment would be considered on time even if the credit card company received the payment after the due date.

7. Currently, if a borrower has two balances at different interest rates such as purchases and a cash advance, the credit card companies apply payments made to the lowest interest rate balance first. This maximizes the interest charged to the consumer. This bill would require creditors to apply the payment in one of two methods, both more favorable to the consumer.

8. In some cases, credit cards allow purchases that exceed the credit limit are allowed to be processed, and the company assesses an additional fee for exceeding the limit. Card companies see this as a service to customers, to ensure important payments will be approved. This bill would give consumers the choice to opt out of this benefit, requiring the credit card company to decline the purchase.

All the above applies only to the House of Representatives version of the bill and only in its current form. It will take time and many changes before the President is presented with a finalized bill to be signed into law.

Read the current version of the bill here.

Updated May 26, 2009 and originally published April 23, 2009. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 15 comments… read them below or add one }

avatar SJ

Wow. I didn’t know about #4 was going on. And as for #8, it’s the same as the “service” for banks to cover overdrafts right? Tho I do believe that’s an opt-in service.

Pretty interesting. Doubt any of that will affect me =)

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avatar Enrique S

I was a victim of #8. The company authorized a charge that put me $63 over my credit limit, and then assessed a $39 fee. This bill would be a good thing.

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avatar Andy

That sucks, but you could have prevented that fee if you had just paid closer attention to your balance and not been so dangerously close to being over your limit. It’s your responsibility to monitor that.

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avatar Luke Landes ♦127,485 (Platinum)

It’s understandable for people who have used credit cards for decades to have grown accustomed to credit card companies automatically rejecting transactions that put someone over their limit; it’s only relatively recently that the companies allow these transactions to go through, resulting in a fee. Everyone should do their best manage their own credit of course, but there are always situations where even the diligent can be trapped. Some credit cards drop credit limits without warning because there is no requirement to warn a consumer of this change; in fact, I’ve heard of at least one case where a purchase was being made within the credit limit, but the company decided to drop the limit at the same time, resulting in a fee.

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avatar Andy

These regulations would not be needed if people would just be more responsible. Pay off your credit card in full everytime and never worry about any of these issues… I just hope the government doesn’t decide to take more of my money and give it to others to pay off their credit card bills!

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avatar Mike

Not always the case. I pay my card in full every month, but about a year ago both BofA and Amex started using the “average daily balance” (#4) to assess me interest the following month. Of course, that’s still in my control as I don’t use those cards anymore.

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avatar kitty

Did you call them and asked if your card has a grace period? If their answer was no, you could have simply switched to the card that has a grace period – most of them do. Also, have you EVER not pay a balance in full? But with standard grace period your previous month’ balance was paid in full too in order for the grace period to work.

I use American Express Blue cash, and I’ve never paid a penny more than the amount of my purchases. My mother used Bank of America and she’s never paid interest either. We know how to count so we’d have known if they charged us any more than the sum of purchases. American Express has a page about grace periods. Here is the explanation from American Express: http://home3.americanexpress.com/corp/consumerinfo/grace.asp

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avatar UH2L

These new laws make so much sense it’s scary that they weren’t in existence before. And I totally disagree with Andy. It’s not about what we should and shouldn’t be doing to manage our own credit cards, but it’s about what’s fair to the customer given that a credit card is basically a contract. The companies are currently allowed to change contracts mid-stream which isn’t true in any other type of loan. They get away with it because nobody really can understand everything in the fine print of the credit terms. I really think the lobbying by the banks and credit card companies led to them being allowed to practice such underhanded ways of operating their businesses. I always say that the Republicans stand for corporate freedom and the Democrats stand for personal freedom. This further supports my theory.

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avatar SJ

Well, does anyone have a idea of present laws?

I’ve always gotten notifications from my CC when things were changing, rates, limit, etc. And if a CC company was pure evil, vote with your dollar and let them become unprofitable. If you don’t, well then … who’s fault is that?

More annoying to me is focus and obsessing over credit scores. I think that is actually something the govt needs to do; make it non-profit.

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avatar Grampa Ken

It would be nice if all businesses were prohibited from the excessive marketing of products or services that are unhealthy or harmful. Less persuasion would result in less problems.

There are too many companies putting too much effort into marketing credit. The credit rates charged are excessively high at a time when investment interest returns are historically low. There could be the argument that their costs are too high but that’s because they market them too heavily and there are too many defaults. So many of these defaults are by people who could not wisely afford the purchases but were persuaded to do so on credit.

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avatar kitty

#1. is horrible. It will hurt the economy and it will restrict credit. No company should be required to operate at a loss and since credit card losses are mounting, restricting the ability to raise rates would just cause companies to reduce lending, to reduce benefits for those of us who pay in full. It will really hurt the economy.

“It would be nice if all businesses were prohibited from the excessive marketing of products or services that are unhealthy or harmful. Less persuasion would result in less problems.”
Do you really want to give this much power to the government? Do you want to live in a nanny state? What if their view of what is harmful to you is different from yours? Besides, everything can be harmful. If you buy an expensive trip that you cannot afford, buying this trip is harmful to you too.

Why do Americans have this “victim” mentality? It was not me who overspent, it was these bad bad banks who made me… Have you not learned the difference between credit and spending money? As humans we have free will. We should be able to exercise it. Nobody forced you or anybody else to even get a credit card. Nor has anybody forced you to use credit to buy something you cannot afford. How about some personal responsibility?

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avatar Grampa Ken

“It would be nice if all businesses were prohibited from the excessive marketing of products or services that are unhealthy or harmful.”

Actually I feel stronger about the matter. Businesses should be prohibited from selling products or services that are unhealthy or harmful. They do not need so much freedom to cause harm. This is not giving too much power to the state it’s removing some from the corporations who can generate profits ruthlessly.

Permitting dishonest promotions, false labeling, small print, hidden charges, bully marketing, gouging, marketing unhealthy foods, targeting kids and such are all bad. The consumer is not the enemy! I suppose many people making money in this environment might like the freedom little regulation allows.

And regulations after the fact are a bit late.

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avatar SJ

@ Grampa Ken

Where do you draw the line? Smoking is harmful. So is alcohol. Twinkies are gross. Guns can be harmful. TV is bad for time management. Paper kills trees =(. Cars crash. Etc. etc…

My wasting lots of time on internet is prolly harmful to me… oh no’S~~~

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avatar Grampa Ken

“Where do you draw the line?”

I would allow most of these things. I would not allow marketing of most of them. Tobacco causes cancer, why would you allow commercials directed to youth as portraying smoking as a cool thing to do when the results can be so cruel.

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avatar SJ

Again, where do you draw the line? Also, are you saying it’s okay to market to adults but not little kids? Should we do that with credit cards too? Only those who are fiscally responsible should be marketed to?

Tobacco laws are already in place (I do believe?) , but not alcohol laws lol. (This is my personal observations based on tv watching =) )
How do you decide what foods are “too fatty”? Red meat is bad for you after all. For that matter, by your logic should marijuana and other drugs be made legal but not marketed? (Actually I’m still confused why smoking is legal but marijuana and what not aren’t. Legacy I guess?”

What about tv? I think I love hulu’s commercial; they acknowledge that excessive tv will turn your brain to mush and advertise accordingly.

Finally, who decides the line?

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