On December 18, the Federal Reserve Board and the National Credit Union Administration amended Regulation AA of the Truth in Lending Act. The new regulations, scheduled to go into effect in July 2010, are far-reaching and designed to protect consumers from unfair and deceptive practices now being used by credit card issuers.
Believing that these regulations are not strong enough and not soon enough, N.Y. Representative Carolyn Maloney has introduced the Credit Cardholder’s bill of Rights to the House of Representatives. If passed, the new regulations would go into effect within 90 days.
Many, including struggling cardholders, see these actions as a positive step forward, but some analysts see a downside.
Under the new rules, card issuers cannot apply a rate increase to existing balances unless the consumer is 30 days late with payment. The practice of universal default will end, and issuers will be unable to raise your rate based on your performance with other lenders. They’ll also be required to give consumers 45 days’ notice of all changes – including the interest rate, billing cycle, and certain fees.
Because this change is good for consumers and bad for banks, the fear is that banks will raise both interest rates and fees and will tighten access to credit for even their best customers.
Next, because card issuers will be required to give 45-day advance notice of changes in interest, billing cycle and certain categories of fees, credit experts fear that new fees will be introduced. New fees wouldn’t be covered by the new rules, but would help boost card issuers’ revenues.
Consumer advocates also warn that the new rules don’t address all of the abuses in the industry. If you pay a few days late, your card issuer will still be free to triple your interest rate on all new charges, after a 45 day notice. There is no cap on fees or rates, so card issuers will remain free to impose whatever rates and fees they choose.
Their final concern would be eliminated if Representative Maloney is successful in getting her bill through both the House and Senate. That concern is that by waiting until July 2010 to make the regulations effective, regulators have given the card issuers too much time to strategize.
Some consumer advocates believe that they will take this time to assure future profits by locking in increases before the new rules take effect.
On a brighter note, some financial experts believe that there’s hope that the card companies will begin competing for cardholder loyalty. For instance, those who can advertise that they never practiced universal default will garner goodwill – especially with cardholders who have been stung by other card issuers.
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