With all the dramatic economic and political changes that are occurring in the United States recently, one would think that the implementation of major beneficial changes to the credit industry would be a widespread media event.  This should especially be true if the changes were beneficial solely to consumers.  However, apparently this is not the case, as very few people overall have heard of the sweeping changes that were brought to the credit industry on Thursday, December 18^th.  New regulations adopted and passed by the Federal Reserve, the United States Department of the Treasury, and the National Credit Union Administration brought unprecedented changes for virtually anyone that uses or issues credit. These changes are designed to protect consumers.  This is highly unusual, as credit reform in the last decade has usually been favorable for the creditors and lenders- not the consumers.  Analysts are already predicting that these changes may lessen the spate of recent filings of chapter 13 bankruptcies in Nassau and Suffolk counties.  But don’t go swiping that card at the terminal just yet- the changes do not take effect until July 2010.  

 

Perhaps the most significant change adopted this month was to limit a creditor’s ability to arbitrarily and unfairly increase interest rates.  In the past, most credit card companies had policies that stipulated their ability to increase your interest rate for practically any reason.  This practice has served to seriously damage the financial health of thousands of individuals who revolve credit card balances.  Often, rates were increased if a debtor was late by even a few days with a payment- including those people with otherwise stellar credit.  Other times, rates were increased to offset losses sustained elsewhere in the financial institution.  With the new changes, such practices will no longer occur.  New regulations mandate that rates may not be increased on existing balances.  People who establish a new account are, of course, subject to whatever rate they sign to.  However, once a consumer revolves a balance beyond one repayment period, their interest rate cannot be increased as long as they carry that particular balance.  If the consumer makes new purchases, those purchases can be subject to a higher rate. 

 

Few consumers have heard of a neat little credit card company trick called payment allocation.  This is where the creditor allots your payments to balances with the lowest interest rates first.  Different types of transactions have different types of interest rates with credit card companies.  One way creditors lock consumers into debt cycles is to allocate their payments to the transaction balances with the lowest interest rate first.  In this way, you pay for a much longer period of time on the higher balances, making it hard for your overall balances to actually decrease.  Not a very nice trick, eh?  Well, this will no longer occur.  Effective July ’10, payments must be allocated to the highest interest rates first.  This is a substantial benefit to consumers, and will help to alleviate the debt of tens of thousands of people. 

 

The reforms also call for 45 day notices to be issued in the event of changes to an account’s terms, longer time periods to pay balances in, and reduced over-the-credit-limit fees and late fees.  However, all these positive changes will have some negative impacts.  Primarily, these reforms will make it harder for people with substandard credit to obtain subprime credit cards.  For everyone, the changes will result in increased costs associated with credit cards such as yearly fees and new account interest rates.  There has also been speculation that the exchange rate (the rate a merchant is charged each time a credit card is swiped in their business) may be increased, which will likely result in a corresponding increase in goods and services at locations where merchants accept credit cards.  However, it should be noted that the benefits of these comprehensive credit reforms far outweigh the few problems they might create.  And besides, Americans need a break- this could be exactly what many of us are looking for.        

 

–

This entry was posted on Wednesday, January 14th, 2009 at 7:49 am and is filed under Long Island Bankruptcy, Long Island Law Firm, Nassau & Suffolk County. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.