The Ups And Downs Of The New Credit Card Reform
Protecting consumers was the central focus on the subject of creating and implementing the new credit card law. Though advocates for consumer rights are still seeking for more protective measures for consumers and say that the new law is insufficient or will set off more difficulties to individuals who are already credit card holders or seeking to get credit cards.
Presently, credit card customers who suffer the most are those considered “risky” due to the high interest rates and fees being slapped on them. Lenders reasons for doing this is that customers belonging to the “risk” bracket are the ones who are prone to be at risk of loan default and raising their interest rates and fees are their only “security” to get repaid. Several restrictions against this type of practice are also contained in the new law but there are also some new, yet not so new regulations that can turn out to be 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 though a number of credit companies already included annual fees on their customers’ credit card statements, 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 usually given to those who had stopped using their credit card for six months. Another one is known as processing fee where for every paper statement processed, $1 is charged to the consumer.
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 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 doing the balance themselves would mean that they have to close the existing one which will not be acceptable for the new provider.
The interest rate last year was just 10.7 percent but the new interest rate was increased to 13.6 percent. Later this year, base rates will also be increased and this would allow lenders to raise variable interest rates.
Credit card holders may also have a hard time to obtain and maintain their credit cards. 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 financial crisis, not only did banks tighten the way they grant credit, but they also devised a lot of schemes to drive their credit card revenues up.
Millions of people have also experienced cuts on their credit limits. An estimated $1 trillion amount of available credit 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.
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 definitely find some 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. A good credit rating will be the only full-proof method for someone to be granted a credit card.
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