New Law Sets Limits on Credit Card Tricks

Reform Targets Short Billing Cycles, Late Fees, Interest Rate Hikes

Jun 1, 2009

In July 2010 new regulations go into effect to put a stop to unfair or misleading practices that credit card companies have been playing with consumers.

It’s not your father’s credit card. A few decades ago interest rates were agreed upon and remained at a steady, dependable rate. A customer could count on that interest rate holding steady until the balance was paid off, and budget their monthly credit card expenditure accordingly. If a customer was late making a payment, a phone call could usually get the occasional charge waived.

In current times, credit card companies have been honing in like sharks, and have been using more and more devious and questionable practices to squeeze the maximum amount of money out of cardholders by shortening billing cycles, charging exorbitant late fees, and finding ways to raise the interest on existing balances, even on consumers who have never missed a payment.

Short Billing Cycles

One trick credit card companies have been playing is to shorten the billing cycle. It is more difficult for consumers to keep up monthly payments with a shorter billing cycle--and makes them much more likely to acquire a costly late fee. New laws will require a reasonable amount of time, at least 21 days, to make monthly payments.

Monster Late Fees and Other Hidden Charges

Many credit card companies have been charging unreasonable fees for being late. Others charge over the balance fees that can be astronomical. The new regulations will restrict the amount that can be charged for such fees.

Interest Rate Hikes

On top of charging huge interest rates, credit card companies often find a reason to change the interest rate on an existing balance, even if the balance holder is current on his payments. They can check the consumer’s credit rating and make a decision to boost the rate on an existing balance from under 12% to 33% or more based on anything from a late mortgage or insurance payment or even a late electric bill! The new laws will prohibit this practice, called universal default.

Other changes will address the need for clearer credit terms, and the practice of applying the minimum monthly payments to the lowest interest balance when different interest rates for different purchases are involved, retroactive rate increases, and double-cycle billing.

These regulations may help, but they will not go into effect until almost a year from now. Credit card issuers claim that the changes may force them to seek other ways to acquire money such as using their good credit card customers to subisdize bad credit risks. The results may be a rise in the average percentage rate and more difficulty in getting credit.

Choi, Candice, "Credit Card Rule Changes Explained". The Morning News, 24 May, 2009: C1. The Associated Press

The copyright of the article New Law Sets Limits on Credit Card Tricks in Consumer Education is owned by Vickie Britton. Permission to republish New Law Sets Limits on Credit Card Tricks in print or online must be granted by the author in writing.