Credit Consumer Protection

No More Unfair Interest Rate Hikes on Credit Cards!

These days, it's getting really hard to make both ends meet. Ever-growing living costs, high levels of unemployment, plus rising credit card fees and interests. Fed Reserve has approved a proposal that would prohibit some deceptive credit practices that cost customers billions of dollars. The changes that would restrict abusive practices used in credit card industry are really necessary in view of the fact that today even diligent cardholders are pressed to avoid credit industry pitfalls. Learn what rules have been proposed at the Fed Reserve board meeting!

Ben Bernanke, chairman of the Federal Reserve board meeting points out that consumers relying on plastics should have more power on their credit decisions. Today, even creditworthy clients face serious difficulties, not to speak about those with average or bad credit.

Federal regulators draft the measures that should be taken in response to numerous public complaints on interest hikes and various deceptive practices. At a recent congressional hearing, the woman from Denver testified that interest rate on her card had soared just because her card issuer decided that the balances on her low rate credit cards were too high.

The most annoying thing is that the woman has never missed her credit payments or exceeded the limit on her card. From lenders' point of view, high credit card balances are enough to raise the rate to 24.99%.

This proposal was introduced by the Office of Thrift Supervision in league with National Credit union Association. It would require creditors to mail or deliver credit card statements at least 21 days before the due date so that customers have enough time to mail a payment in order to avoid late credit fees.

In case this proposal is enacted, it would also prohibit lenders from increasing interest rates, except in certain cases when a cardholder is more than 30 days late with credit payments, or if an introductory interest rate has expired.

In addition to that, it would restrain credit fees required to receive the card, meaning these fees would not eat up the majority of your available credit limit. The proposal would also bar a practice in which creditors apply credit payments to the lowest-rate balance. Credit cards with balance transfers can serve a good example to this practice. In accordance with the proposed rule, the payment should be allocated among all outstanding balances.

It was estimated that abusive credit practices cost billions of dollars to credit consumers each year. According to statistics, credit issuers annually collect around $15 billion in penalty fees only, not to mention overdraft fees that amount to $17 billion per year.

This proposal is now open for public comments. It will be opened for 75 days. However, this process can take some time. Randall Kroszner, Fed governor, expects the proposed rules will be in place by the end of the year. This way, credit card companies would have to accomplish the following changes, though these changes have already been under fire from the credit card industry.

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