The Ups And Downs Of The New Credit Card Reform
The new credit card law was supposed to protect customers from unfair credit card rate hikes and fees. Although advocates for consumer rights are still asking for more protective measures for consumers and say that the new law is lacking or will produce more burden to individuals who are already credit card holders or seeking to get credit cards.
Currently, ”risky” borrowers gets the most burden because of the high interest rates and fees being slapped on them. Some of the reasons lenders provide is that customers belonging to the “risk” group are the ones who have a higher probability to default on their loans at an earlier stage and raising fees and interest rates are their only “guarantee” to get repaid. The new law will present restrictions that will somehow reduce this kind of practice but there are also some resurrected regulations that could be taken advantage.
One of the resurrected regulations are the annual fees which was removed a decade ago. Even if a considerable percentage of lenders in the US have added annual fees to their borrowers bills even before the new law took effect, this is now something that all credit card consumers will have to deal with from now on.
Ways to create added revenue were also created by some credit companies. Inactivity fee is one which can amount up to $20 for those who have refrained from using their credit card for half a year. Another one is known as processing fee where $1 gets charged to new customers who apply for credit cards and it’s for the processing of paper statement.
Existing fees were also raised and one of them is the balance transfer fee. From 3 percent to 5 percent, one particular financial institution, JPMorgan Chase, now charges customers who opt to do balance transfers to another provider in an effort to lower their credit card debt. Customers who want to do balance transfers have no choice but to pay since the only way that an effective balance transfer could take effect is coordination between the old and new provider.
The interest rate last year was just 10.7 percent but the new interest rate was increased to 13.6 percent. Base rates is also expected to be increased soon and this would allow lenders to raise variable interest rates.
The ability to get and keep credit cards is also harder nowadays. Nowadays, lenders granting credit cards has become more stricter and are doing all sorts of measure to reduce risks. Because of the credit crunch, not only did banks tighten the way they grant credit, but they also devised lots of schemes to get more revenue from their credit cards.
Credit limits were also cut for millions of people. An estimated available credit amounting to $1 trillion is said to have been eliminated by doing this. The most cuts on credit limits that occurred in California and Florida because of the mortgage crisis and high unemployment rate.
Credit card offers on mails have also become picky. Compared to year 2000 up to 2008 which had an average of 2.3 billion solicitations, only a quarter of this figure have been recorded in 2009.
A few restrictions have been added to the new credit card law as well and most banks will surely find several ways to get around it. This is an additional factor why banks will be more reluctant to issue credit cards especially to those who have low credit ratings and low FICO scores. Consumers who have good credit records and have other business with banks are the more targeted market for granting credit cards.
