President Obama recently signed a bill that reforms certain abuses within the credit card industry that may change life as we know it. The bill won’t take effect until 2010 but wounded lenders are already threatening reprisals in the form of higher rates and more fees.
The new bill will help consumers in many ways:
More time to pay bills: Bills will be due on the same day every month, no less than 21 days after they are mailed or delivered. No arbitrary time before 5 pm can be set for when the payment has to arrive. No late fees can be charged for payment not made on the due date when it fall on weekends or holiday.
More limited interest rate hikes: Raising the interest on existing balances can only be done under certain conditions. Subprime fees can't be applied until a payment is over 60 days late. Terms can't be changed for paying off old balances. No more interest rate increases because the cardholder was late with someone else. More notice for interest rate increases.
Limits on fees and penalties: Subprime interest rates charged if a customer was over 60 days late with payment will revert to the original rate once the customer has been on time for six months. Fees and penalties must be reasonable, based on rates set by the Federal Reserve Board. No fee can be charged for making payments, unless they are expedited through a service representative. No over-the-limit fees can be charged unless the customer agrees to have account set up to permit authorization of over-the-limit transactions.
New way to apply payments: Payments above the minimum payment will be applied to highest interest rate items.
Other provisions deal specifically with new cardholders and cardholders under 21.
In the current economy, many card holders who have been late on payments – maybe because they diverted the money to their house payment – have been slapped with high late fees, often compounded with over-limit fees, and subprime interest rates as high as 30% within a short time span. Even when consumers paid most creditors on time, they could be faced with interest rate hikes or credit line decreases based on their performance with other creditors. Interest rate hikes applied to all consumers even extended to old balances. Companies charged excessive fees even to pay the bill. The new law prevents lenders from going crazy with fees and interest rate hikes.
The new bill does not reward the bad behavior of people who can't or don't pay, but does make the treatment of all consumers more fair. This is a good thing. Even if you personally feel that people have gone overboard with credit, it is hard too feel too sorry for the banks. They have a year to find ways to recoup any losses they may incur as result of the new law, so it is unlikely they will pay a great price for being forced to act responsibly. Consumers are likely to pay, one way or the other, but many people will be forced to reassess their relationship with credit and how they use it.
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