Consumers feeling the grip of credit card companies tightening around their resources are in for some relief. To make up for the profits lost due to lowered consumer spending and increased credit card defaults the loosely regulated credit card industry has been raising borrowers rates at will. New rules from Federal regulators were adopted on Thursday to alter that practice.
Consumers will be protected from rate increases affecting current balances, instead, they will only be charged for future purchases and cash advances as well as on brand new credit cards. Longer notification periods for rate increases will be implemented extending the current 15 days warning to 45 days notice.
The reforms will prevent the industry from:
• Allowing deceptive offers of credit
• Unjustly adding fees for issuing credit or making it available
• Placing inequitable time constraints on payments
• Charging too-high fees for exceeding the credit limit because of holds on the account
• Partaking in double-cycle billing practices
These consumer protections will cost for the industry $10 billion a year in lost interest payments. However, consumer with bad credit may not benefit from these policy revisions. They will now struggle to secure subprime cards carrying higher interest rates. Subprime cards are usually issued after consumers immediately pay a large upfront fee for a small credit limit. The new rules spread the initial cost to be paid over a year and limit that fee to 50%.
The Office of Thrift Supervision, a Treasury Department division, approved the credit card reform rules. They were initially proposed in May of 2008 and will take affect in July 2010.
