The Office of the Comptroller of the Currency (OCC), a governmental regulatory organization feeling the pressure with the White House proposing replacing many of their duties with a new consumer-oriented regulatory body, has sent out a warning to the CEOs of all national banks. The Credit CARD Act of 2009 requires credit card issuers who raise a customer’s interest rate to abide by a number of regulations.
These regulations, such as the requirement to reassess the rates for anyone whose rate increased since January 1, 2009 and for the bank to provide a specific reason for any rate increase, don’t take effect until August 10, 2010. The OCC’s warning is designed to remind credit card issuers that although the rules don’t change until a year from now, they will be in effect for any customer who has been effected since January 1, 2009 — before the Act became a law. The banks will need to maintain these records so they will be available when the regulators come calling next year.
Read the OCC’s letter to CEOs of national banks.
Unfortunately, I am unaware whether my credit cards have increased their interest rates. It has been a long time since I’ve used a credit card to pay for something I could not pay back by the date the credit card payment was due. But I consider myself lucky and thankful to be in that position.
Has your interest rate increased this year?
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.
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