The Ups And Downs Of The New Credit Card Reform
Protecting consumers was the main focus on creating and implementing the new credit card law. Consumer advocates, on the other hand, are still seeking for more consumer protection law and say that the new law is ether not sufficient or will bring about more difficulties to individuals who are already credit card holders or seeking to get credit cards.
At present, credit card customers who suffer the most are those considered “risky” due to the high interest rates and fees being slapped on them. A number of of the reasons lenders give is that customers belonging to the “risk” category are the ones who have a higher chance to be at risk of loan default and raising fees and interest rates are their method to get the most out of their customer. This kind of unfair practice by lenders could see some limit with the new law but there are also some new, yet not so new regulations that can become advantageous for lenders also.
Ten years ago, annual fees on credit cards were removed but it’s now making its way back to people’s credit card statements. Even if a sizeable 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.
Other additional fees are also created by some credit card issuers. Inactivity fee is one which can amount up to $20 usually given to those who had stopped using their credit card for six months. 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.
Other fees that already exist like balance transfer fees have also been raised. From 3 percent to 5 percent, one particular financial institution, JPMorgan Chase, will now charge customers who wants to lower their rates by transferring their current balance from another bank or financial institution. Customers who want to do balance transfers would have to pay for it since the only way that an effective balance transfer could take effect is coordination between the old and new provider.
Last year’s interest rate amounted to 10.7 percent. Now, interest rate for new credit cards is at 13.6 percent. Base rates is also expected to be increased soon and this would obviously raise the variable interest rates both on savings and credit cards.
The ability to get and keep credit cards is also harder nowadays. A more cautious approach is being done by lenders when it comes to granting credit cards and are doing all sorts of measure to reduce risks. Since 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 $1 trillion amount of available credit is said to have been eliminated by doing this. California and Florida are two states that were the most subjected to credit limit cuts due to the high unemployment rate and housing crisis.
Most credit card providers are now sending credit card solicitations only to those they know are good candidates. 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 discover 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. Credit card offerings will be more likely targeted to people who have a good credit score or have other banking activities such as savings accounts.