New Consumer Protections Will Probably Not Remedy Everything

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Consumer Outrage Prompts New Protections for Cardholders

The recent government bailout of the nation’s banks, begun under former president George W. Bush and continued under current president Barack Obama, has produced considerable outrage among many Americans, particularly those facing mounting job losses, declining home prices and income, rising variable-rate mortgages and a host of other economic and financial pressures. The $ 700 billion rescue may well have been necessary, and bankers and politicians assure is it was, to save the financial system from collapse, and keep banks afloat and offering credit to consumers.

The disclosures of the salaries of the heads of companies that failed so drastically, and their spending like Croesus while the rates were raised made a lot of people angry, and justifiably so. When this combined with persistent complaints from consumers about credit card and banking account abuse by banks, Congress finally moved in 2009 to address at least some of the industry’s more aggressive practices.

The Credit Act of 2009 Promises Relief to Consumers

The Credit Card Accountability Responsibility and Disclosure Act, or CARD, enacted by Congress in May 2009, is being called a major step forward in reining in some of the banking industry’s excessive practices. Though there are some definite and specific curbs that are good, there are also limits to what the law is able to regulate. Plus, the time gaps in implementing the various measures are allowing banks to find alternate ways to charge fees and raise interest rates, actions which have raised the ire of consumers in recent years.

What the Credit Act Will Regulate

The first phase of CARD took effect back in August 2009. Since August, card issuers must announce any interest-rate increase 45 days before it takes effect, and the notice must be in writing. Cardholders can refuse the increase by closing the account, and can pay off the account in five years under the old terms. Some banks are letting their customers keep an account open, but no purchases can be made until the balance is paid. Another change since August, requires card issuers to deliver account statement at least 21 days prior to the due date, up from 14.

A second phase takes effect in February 2010. Banks will then be prohibited from raising interest rates on current balances unless a customer is at least 60 days behind on a payment. This restriction will apply to raising interest rates on a single balance if the cardholder fell behind on an account with a different card. In addition, a customer whose rate is increased for being 60 days late must be allowed to earn back the earlier rate with successive on-time payments for six months. These protections do have exceptions: banks can change introductory rates, temporary hardship rates, and established variable rates.

Some other rules slated for a 2010 debut are: balances with different rates due to transfer offers, payments above the minimum have to credited towards the balance with the highest rate, banks can only charge over the limit fees if the customer authorizes the bank to allow them to do so, and cardholders can’t be charged for payments made online or over the phone unless the customer requests expedited service.

Will the Act Make Any Difference?

CARD thwarts several egregious practices imposed upon consumers by many banks. The limitations on rate increases are the highlights, as well as the manner in which excessive payments are distributed to balances on the same account. Of course, constricting over-the-limit fees and extending notice periods are helpful as well. What banks can do to still make money and not be overruled by CARD? Bill Hardkopf, CEO of LowCards.com, a Web site that tracks the industry, says: “There are so many things that issuers can do that the Card Act doesn’t touch.”

What issuers have been doing leading up to CARD’s full implementation is to arbitrarily raise interest rates, including on fixed-rate agreements, slash credit limits and, in some cases, close accounts, all in the name of “a challenging economy.” What they can do after implementation is close accounts, swap fixed rate agreements to variable rate, and charge annual fees on some cards, including new ones. For these actions, the Act offers no protection.

Where the Consumer Now Stands

Congress has acted to provide some real benefits and protections to credit-card users and it is to be praised for that. It didn’t act on other bank practices, though. For instance, nothing in the Act prohibits banks from charging more than 30 percent, which normally would be labeled as usury. In addition, they can charge these rates retroactively after the 60-day period of being late. These actions by banks were often the result of customers that had missed a payment and were deemed to be in default. Banks have shown some flexibility for one-time late customers, particularly if they have consistent payment histories. They almost always charge a fee for one missed payment. The Act thankfully limits late charges to $ 39 per occurrence at the most, and offers the account holder 60 days to change the late status before the major charges occur.

If, or when, a card holder’s bank imposes severe charges, the user should talk to the bank and request the charges be modified. Specifically, the consumer should ask to have the credit limit raised again if drastically lowered, ask that rate increases be lowered if drastically raised and ask that a variable-rate status be returned to a fixed-rate agreement. If a large number of consumers undertook such action, the banks could be pressured if they started to see their customers leaving them for other banks offering better credit-card terms. Remember that being properly informed about your financial rights under the law cuts back on how you can be taken advantage of. Consumers can learn more about CARD here.

Finally, consumers can, as they should, write or call their Congressperson and ask them to expand the protections of the Credit Card Accountability Responsibility and Disclosure Act.

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