Credit Card Reform Goes into Full Effect
According to an NY Daily News report, one of the biggest game changers brought about in the Credit CARD Act is the stipulation that credit card companies must now disclose the time and cost it will take you to pay off your credit card bill with the minimum payment. Industry experts expect that “jaws will drop” upon seeing the true cost of credit, which may hurt business for credit card issuers and banks.
The CARD Act, which was signed into law nine months ago but only just recently went into full effect, was designed to give consumers relief from the high costs of credit and deceptive or confusing credit card marketing tactics. However, in the meantime, credit card companies have taken actions that ended up hurting customers by increasing rates, cutting down credit limits and imposing annual fees. They took these measures in anticipation of the new credit card laws that would be put into place, which ultimately may make the CARD Act detrimental to consumers.
Some of the preemptive actions taken by credit card companies include:
- Annual fees making a comeback after a majority of cards required no such yearly fee for the last 10 years.
- Creation of new fees and increased penalties for other fees (processing fees for paper statements, inactivity fees and increased balance transfer fees).
- Raising interest rates or switching cards to variable interest rates.
- Cutting credit limits on about 40 percent of existing accounts.
The new legislation also may make it harder for borrowers with poor credit (subprime borrowers) to get credit cards because credit cards will now be much less profitable. For now, these consumers may have to rely on other methods such as PayPal, prepaid cards, payday lenders and debit cards.
Because of the reaction to the Credit CARD Act, many industry analysts are calling this new reform a “mixed blessing” for consumers.
Monheit is the managing lawyer at Monheit Law, outside Philadelphia, Pennsylvania. He has practiced law since 1989. Michael Monheit was the managing attorney of the law offices of Herbert Monheit — now Silverman and Fodera — a firm founded by... Michael Monheit→
