Thursday, August 27, 2009

Unintended Consequences of the Credit Card Act of 2009

The first part of a new federal regulation concerning consumer credit cards is now in effect. The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (or Credit C.A.R.D. Act) has been billed as increasing protections to consumers and curtailing abusive practices by credit card companies. These new regulations include: requiring more notice to cardholders prior to an interest rate increase; requiring that people under 21 must have a job or a co-signor in order to get a credit card; and eliminating an abusive practice known as “Universal Default.”
Unfortunately, the Credit C.A.R.D. Act is also having some unintended consequences. The credit card industry is responding to these increased consumer protections by reducing credit lines and canceling many cardholder accounts without advance notice. Card companies maintain that they are taking these steps in an attempt to “tighten up” and control their financial risk. Under the present law the card company must notify you of a card cancellation “within a reasonable time” and many consumers are being surprised by a card cancellation at the register.
Additionally, while the practice of “Universal Default” (raising interest rates on all cards when you default on one card) will soon be against the law, the credit card industry is implementing a new policy to restrict your spending limit or close your account in the presence of negative credit items on your credit report. In other words, if you default on one card, your cards may be canceled.
Card companies are also exploring new ways to exploit their customers. CITI has announced that it will institute a $30 annual fee on certain accounts. Other companies like American Express have increased their fee schedules for late payments, and, in some cases, increased interest rates prior to the new law taking effect. American Express is not alone. A survey by Pew Charitable Trusts found that interest rates on credit cards have increased an average of two percent since last December.
Fortunately, consumers who find themselves victimized by credit card companies have a powerful tool to fight back: the United States Bankruptcy Code. The bankruptcy laws protect consumers from the crushing debt that card companies enjoy placing on the average American. If you are experiencing financial distress from the abusive practices of the credit card industry, consult an experienced bankruptcy attorney and discuss your options.
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