Every Tuesday, Smithee presents an article about his own experiences credit cards with and observations about the credit card industry.
The U.S. Federal Reserve is set to vote on Thursday (Dec. 18) on a set of rules which could change credit policy affecting all Americans. The full set of proposals is more than a thousand pages long, but here are the highlights:
Fewer interest rate hikes
It would no longer be allowed to raise the interest rate on an existing balance, and credit issuers would have fewer options for raising rates seemingly at random on their customers with good histories.
An end to Universal Default
Some companies would penalize customers for having a bad history outside of the issuer’s credit account, such as with a utility company. This will no longer be legal.
More on-time payments
Payments will have a due date at least twenty-one days after statements are delivered.
Payments to be applied first to the highest interest items
Currently, your credit card payments are likely going toward the part of your balance with the lowest rate. This benefits the credit issuer and extends the length of time you’ll be paying. This practice will be reversed.
New information design
Credit card applications, monthly statements and other materials would clearly display terms in reader-friendly boxes with large type. Credit card issuers would have to disclose the consequences of only making minimum payments each month — namely, that it will take much longer to pay off the credit card balance. Issuers also must eliminate the use of the term “grace period” on credit card applications and solicitations. Instead the phrase “how to avoid interest” or similar wording would have to be used. The term “fixed rate” card can only be used if the rate will never change. Monthly statements would also carry boxes that provide year-to-date totals on the amounts paid in fees, interest and other charges.
This is probably my favorite of the new rules, as it most closely attempts to inform and educate consumers, instead of telling people what they can and can’t do.
More accurate credit offers
Credit issuers will have to work harder when attracting targeted future customers with low interest rates, in that the low interest rate quoted will have to be close to the rate that the customer is approved for. People are frequently surprised when they apply for a 9% card and are awarded a 23.99% card.
Naturally, credit issuers are decrying the proposals, saying they will end up hurting consumers by making it more expensive for the credit card companies to do business. This may turn out to be true, but at least in some cases, it’s obvious that credit card companies make money by being deliberately deceptive, and as a recipient of that deception, I’d like to see it stop.
The new proposals are expected to pass the vote, and companies will have up to a year to put the new practices in place.
More details are at Reuters, and there’s audio at NPR.
Published or updated December 16, 2008.
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This is great news for everyone. I do think the practices could go farther, but it is a start. I’d push to keep the cards out of the “auto rebill” business that nutracutical companies use. They charge a low shipping and handling fee, say $4.99 for a “free trial” to get a consumer’s card number. Then the usually unsuspecting customer is charged $70 to $90 dollars after 14 days. It’s in the fine print, if you have a magnifying glass, but it’s really a sneaky way to charge way too much for what’s often a placebo.
The credit cards are all too happy to play along, just as they were with online gambling until Congress stepped. in.
We’ve come out fairly loud and hard in support of this legislature, so I’m glad to see it giving coverage; thanks Smithee. The nature of banking is changing and banks are going to have to change with it – because of the internet’s ability to allow for comparison shopping, there is accountability that wasn’t present before. With places like Thrive doing the calculations and recommending the best cards and accounts for people, banks will need to actually present the best offer to stay ahead in the marketplace. No hidden fees, no scare tactics…I believe we can force them to create solid banking products.
I am against making universal default illegal. Universal default s a fair rule that lets creditors cover their own backs. If you default on another card, you ARE more likely to default on all your other cards than if you hadn’t defaulted. Credit is priced based on risk. It is irreelvant whether or not you defaulted on that particular card.
I am very much for all this stuff. It’s often almost impossible to find your credit card interest rate, even online. I expect that the Cash Back features of many cards will go down or disappear altogether, since credit cards won’t be able to make lots of money off unsuspecting people through huge rates and hidden fees, but I guess the convenience of knowing how your card is actually working for you will more than make up for it.
Do you see a big improvement even if these are passed?
I usually keep up on news like this! Great reporting.
I am not sure how I feel about these reforms, mainly because I think generally CC companies are evil insofar as they TRY to screw you out of fees, however, I hate the idea of the government changing a private contract I made with visa. It could be a slippery slope!
I think the interest rate cut that the fed did yesterday is not going to help too much. People all starting to live more frugal lives and our not spending money on the things that they are used to spending money on.
What about personal responsibility? Accountability? Just because there are scams out there doesn’t mean you don’t have to be responsible for yourself. I just hate seeing more and more government. It just keeps getting bigger and bigger.
I’m glad for easier to read details but why does it HAVE to be government mandated? *sigh*
Wait a minute…can the federal reserve bank even regulate the credit card industry? Since when do they make rules governing consumer lending?
We who use creditcards need a bailout how about a 6 month no interest bailout? The interest all our cards have been raised to is usury! Credit card companies are allowed to get away with highway robbery when it comes to rates, over charges etc
@Terri,
What in the hell are you talking about?
“We who use creditcards need a bailout how about a 6 month no interest bailout?”
1) What the hell should a publically traded company like visa or mastercard not make any money for 6 months?
2) Who is even proposing this ridiculously retarded idea?
“The interest all our cards have been raised to is usury!”
The definition of usuary is that of an illegal amount, as such, the cards can’t be raised past that amount (in NY for example that amount is 29.99%). Why the hell do you get to be a judge as to whether 20%, 15%, 10%, or 29.99% SHOULD be the illegal amount? Are you an elected official, probably not lol.
“Credit card companies are allowed to get away with highway robbery when it comes to rates, over charges etc”
You are corred and I agree with you, but to have a populist gov’t the likes of south america where the gov’t comes in and changes private contracts to appease the mass public will inevitably lead to destruction of the country.
Come on, you may be better than this mass hysteria B.S. or maybe not since your blog just seems to be one huge commercial for TriVeta LOL