theirstaxblog.com

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 plus rescue was necessary, government and bank leaders say, to save the nation’s banking and investment system from imminent collapse and to help restore failing banks to financial liquidity and ability to offer credit to America’s businesses and consumers, both large and small.

But the disclosures of large salary bonuses conferred upon bank executives, lavish spending on entertainment and the continued tightening of credit became lightning rods for the public’s anger. 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. Also, the gap of time between the various measures beginning to take effect let banks find other means to charge fees, raise interest rates, which is what angered consumers in the first place.

What the Credit Act Will Regulate

The first phase of CARD took effect back in August 2009. Since August, card issuers have to announce interest rate increases 45 days before they take effect, and it has to be in writing. Cardholders have the right to refuse the increase by closing the account and are also allowed to pay off the balance within five years under the old terms. Some banks are allowing their customers to keep an account open but no new purchases may be made on the card 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. A customer who has had their rate increased for being 60 days late has to be allowed to earn back the earlier rate with 6 months of successive on time payments. But these protections have several exceptions: banks can still charge increases on 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 practices that customers must endure from 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. But what can banks still do to generate revenue and not be overruled by CARD? As Bill Hardkopf, chief executive officer of LowCards.com, a web site that monitors 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. The Act doesn't protect these actions, though.

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, there is nothing in the Act that prohibits banks from charging exorbitant interest rates that have been as high as 30 percent and more, levels traditionally associated with usury. They can charge these rates retroactively after 60 days of being late. These actions have been taken by banks usually in response to customers missing a payment and being deemed in default of their account. Banks have demonstrated some flexibility for single late payments, if they had up to then consistent payment histories. But they almost invariably impose a late charge for missing one payment. Thankfully, the Act now limits the late charge to a maximum of $ 39 per occurrence and at least offers the payer 60 days to mend his or her late status before major changes 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 acting similarly, the banks could be pressured if they started to see customers leaving for banks with 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. You can look up the facts on 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.

Tags: bailout, consumer protections, credit act, credit card holders, credit protections, credit-card nation’s bank