Enough lyrical digressions for now, let’s get down to business. Federal regulators are planning to impose new rules and regulations for the credit card industry. The new rules are supposed to protect credit card users from lenders’ unfair practices. The two most significant changes on the agenda are banning of interest rates increase on the existing balances and allocating all payments to outstanding balances on the cards with lower APRs.
The rules are to come into effect in July 2010. If this happens, credit card companies will no longer have a legal right to raise interest rates on a consumer’s existing balances. The change of interest will be applied to new credit card deals, future purchases and cash advances. Another restriction the Fed is planning to impose on lenders is forbidding the allocation of cardholders’ payments to credit card balances with lower interest rate, prior to high interest-rate balances.
The changes were proposed this May. The projected new rules were approved not only by the Federal Reserve, but by the National Credit Union Administration and the Treasury Department’s Office of Thrift Supervision as well.
Another protective measure that will shield customers from abusive lenders’ practices is prolongation of the notice period. While at present cardholders receive 15 days’ notice informing them about the changes to the terms and conditions of the account that will be applied in 15 days. The new rule suggests changing this period from 15 days into 45. A 45 days’ notice will allow customers get financially ready for new terms. This rule will apply even to penalty fees, such as late payment fee, or increase of interest rate or missed payments and to all changes of the terms of an account.
But despite authorities’ good intentions, these changes, in fact, might worsen the credit situation for cardholders. According to some experts, new rules might make it harder for people with limited credit and lower credit scores to get limited credit cards, the so-called subprime credit cards with a higher interest rate.
Even the Fed admitted that there is a possibility that the changes could result in increased costs for millions of credit consumers. The Fed also noted that the new rules could reduce credit availability for most cardholders, especially those with limited and fair credit.
So, the possible effects of these rules’ introduction will be examined further. Policy makers have to be 100% sure that such changes will not aggravate the customer’ position. Complete realization of impact of any new rules and regulations on cardholders, lenders and our economy in general is vitally important.