New Credit Card Rules Going Into Effect On August 22, 2010

If you've ever paid a really high late-payment fee, or if you've ever felt like a sucker after reading the terms and conditions associated with a new credit card and realized you accepted an unreasonable fee schedule, then you'll like today's news. On August 22, 2010, the nation's top banking regulator -- the Federal Reserve -- is set to put into place new rules that limit certain credit card fees. For example, credit card banks will no longer be able to charge more than $25 as a late payment fee, while a penalty fee can no longer exceed $20.

Here's a clip from yesterday's Federal Reserve press release:

• "... Prohibits credit card issuers from charging a penalty fee of more than $25 for paying late or otherwise violating the account's terms unless the consumer has engaged in repeated violations or the issuer can show that a higher fee represents a reasonable proportion of the costs it incurs as a result of violations.
  
• Prohibits credit card issuers from charging penalty fees that exceed the dollar amount associated with the consumer's violation. For example, card issuers will no longer be permitted to charge a $39 fee when a consumer is late making a $20 minimum payment. Instead, the fee cannot exceed $20.
  
• Bans "inactivity" fees, such as fees based on the consumer's failure to use the account to make new purchases.
  
• Prevents issuers from charging multiple penalty fees based on a single late payment or other violation of the account terms.
  
• Requires issuers that have increased rates since January 1, 2009 to evaluate whether the reasons for the increase have changed and, if appropriate, to reduce the rate.

The final rule represents the third stage of the Federal Reserve's implementation of the Credit Card Accountability Responsibility and Disclosure Act of 2009, which was enacted in May 2009. The provisions of the Act addressed in this rule will generally go into effect on August 22, 2010..."

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U.S. Prime Rate Likely To Remain at 5.00%

If you have a variable-rate credit card in your wallet or purse, chances are the annual percentage rate (APR) is indexed to the U.S. Prime Rate. The Fed will be meeting on interest rates on Tuesday, and, thankfully, it's likely that they will leave the Prime Rate where it is.

If you have a lot of credit card debt, and you're paying interest on it, then be careful. With inflation on the minds of just about everyone in America, it's quite possible the Fed will raise the Prime Rate at some point later this year. Stay tuned to Prime Rate forecasts here.

When the Fed cuts Prime, credit-card banks usually respond by lowering your Prime-indexed APR, but they tend take their time. On the other hand, when the Fed raises Prime, banks usually respond by raising Prime-indexed APR's quickly. Something to keep in mind as you make money-related plans and decisions now and during the rest of 2008.

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Credit Card Debt: State Rankings

If you've ever wondered how your state ranks in terms median credit card debt per borrower, then check out this page, brought to you by the good folks at Americans for Fairness in Lending.

Scroll down the same page at the www.affil.org website and you'll find a form that anyone can use to quickly and easily contact the Federal Reserve and share with them experiences dealing with credit-card banks. There are literally tens of thousands of letters. I think it's a safe bet that reform is on the way.

It's good to see that the Fed is on the credit card reform bandwagon.

FYI: If you decide to submit your story, it may be made public here, so don't send anything too sensitive or too personal, like your credit card number or social security number.

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Credit Card Consumers Are Fed Up with Abusive Terms

Credit cards are great. They allow us to quickly and easily buy the things we want and need in life. They offer excellent protection from fraudulent merchants, Internet scammers and other credit card criminals. Moreover, most credit cards in the American market offer very generous rewards programs, and all you have to do to take advantage is keep your credit score high so as to maximize the odds that your credit card application will be approved.

Besides, who wants to carry huge wads of cash around every day?

Of course, there's a dark side to the credit card industry. Certain banks try to take advantage of both credit worthy and not-so-credit worthy consumers with abusive terms and conditions. Policies like Universal Default, out-of-the-blue credit line decreases and interest rate increases, double-cycle billing and, with regard to balance transfer offers, applying payments to low interest credit card-debt first.

According to a recent CommonDreams.org press release, American credit card consumers are sick of unfair terms and conditions, and they're pushing the Fed to implement new rules sooner rather than later.

Since the Federal Reserve proposed rules to prohibit unfair practices regarding credit cards, the central bank has been flooded with consumer complaints related to the terms and conditions associated with their credit card accounts. Here's a clip from the release:

"Over 30,000 Consumers Flood the Federal Reserve Board With Complaints About Abusive Credit Card Practices...Huge Public Response Shows Need for Board to Adopt Strong Protections Quickly...

...Angry consumers have deluged the Federal Reserve Board’s public comment system with more than 12,000 personal pleas for reform since banking regulators invited comments on a proposed new rule to curb unfair and deceptive credit card charges. In addition, about 19,000 more Americans have sent form letters urging action since banking regulators proposed the rules on May 2, 2008. The deadline for public comments on the proposal is August 4, 2008.

'The massive response in favor of these reforms shows that Americans are fed up with the many traps and tricks that card companies use to drive up the amount of debt consumers owe,' said Travis B. Plunkett, legislative director of the Consumer Federation of America. 'We urge the Federal Reserve Board to take heed of this overwhelming public reaction by finalizing strong rules to curb credit card abuses by the end of the year.'

The proposed rules will curb a number of unfair practices, including:

• Costly and Unjustified Interest Rate Increases. Credit card companies could no longer charge higher interest rates on balances incurred before a rate increase went into effect, unless the cardholder is more than 30 days late in paying his or her credit card bill.

• Hidden Payment Allocation Methods that Cause Debt to Escalate. Card issuers would be required to more fairly apply the payments that cardholders make to balances with different interest rates. When consumers transfer balances with low, short-term 'teaser' rates (that have higher rates for new purchases), issuers would be required to apply payments first to higher rate debt.

• Interest Charges on Paid Debt. Companies could not use 'double cycle billing,' which requires cardholders to pay interest on debts paid off the previous month during the grace period. 'The time for Americans to act is now if they want their credit card company to treat them better,' said Plunkett. 'Consumers have about two weeks to make their voices heard.' Americans can write the Federal Reserve Board about the proposal by e-mailing directly to regs.comments@federalreserve.gov and mentioning Docket No. R-1314 in the subject line.

Some examples of recent comments to the Federal Reserve Board include:

'I support reform of credit card rules and regulations…The average consumer cannot afford to have their financial welfare in the hands of the credit card businesses.'
Mary, Borden, IN

'Credit card fees are out of control and the total of all of the penalty fees, plus interest rate increases, does nothing to support the recovery of the economy or of the individual consumers who are struggling in today's economic hard times.'
Kathleen, San Jose, CA

'[They] raised my rate from 6.99% to 15.99% in August 07, for no apparent reason other than they could. In my opinion that's legalized loan sharking. I was fortunate enough to be able to pay it off. Others, I'm sure, aren't so lucky.'
Pryor, Roswell GA

'I think it is abhorrent that I make timely, substantial payments to my credit cards and NOTHING gets put towards my higher interest rate.'
Elissa, Great Neck, NY

'...charging interest on amounts which have been paid during the month should be curtailed. It's ridiculous that paying off the majority of the bill, but leaving a few dollars owed, can cause full interest on the previous month's balance to be levied.'
Ingrid, Loma, CA..."

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