US Credit-Card Reform Act Becomes Law
What are the Implications of the New Legislation on Credit Cards?
Aug 25, 2009
Back in February 2009 it was first suggested that it would be a good idea to curb the abuse of credit cards. In May President Barak Obama brought his weight behind the Act and now it has become law. According to an Open Congress poll 77% of those who responded were in agreement with the need for this legislation.
What Prompted the Need for New Credit Card Legislation
The trouble with credit cards is that it is too easy to run up enormous debts ($963 billion in January 09). Credit card companies have been able to vary interest rates at will and to inflict penal charges, further exacerbating such problems. Credit card indebtedness has been spiraling out of control and this act is an attempt to bring the whole mess under control.
What are the Purposes of the New Credit Card Legislation
- It will increase transparency of consumer indebtedness, and allows 18 year olds to have their name included in any agency list.
- It amends the Truth in Lending Act to prohibit credit card agencies from changing the terms of a credit card under an open end consumer credit plan during the contract period and establishes the right for repayments to be made as per the original terms of a lapsed or terminated contract.
- It imposes limits on interest rate hikes and financial charges prior to the scheduled date of renewal.
- It limits APR changes within a contract to certain consumer violations as a penalty.
- It bans retroactive rate hikes.
- It limits credit card company rights to impose late charges where the consumer can prove- through a postmark or through an electronic transfer, that the payment was made in good time.
- It puts the onus on the credit card company to verify at the time of borrowing, that the consumer has got the means to repay.
- It amends the Fair Credit Reporting Act to create greater transparency.
Credit Limits Being Slashed by Credit Card Companies
One of the effects of the legislation is that credit card companies have been slashing consumers' limits. Ellie Kay, author of The Little Book of Big Savings today gave some timely advice for those people who have been affected by this. She suggests that one way to gain some leverage is to increase the credit rating score.
How to Increase One's Credit Rating Score
Ellie Kay suggests a few simple changes to increase scores.
- Pay a day early
- Pay more than the minimum charge
- Only borrow up to 50% of the card limit at any time
By increasing the credit score the consumer then has more bargaining power with the credit card company. Ellie Kay suggests that should a consumer's credit limit be slashed, they immediately get on the telephone and negotiate. "A higher credit rating will give you more credibility with a credit card company," she states.
Reference
Ellie Kay, The Little Book of Big Savings, 2009.
Open Congress
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