The buzz about the new legislation regulating credit cards has resulted in card issuers raising their interest rates substantially in the last few months. The new legislation that is quickly coming down the pike has put financial institutions on notice. Consumers on the other hand are seeing this new legislation as potential relief from these seemingly unrestrained interest rate hikes and fee increases. The ultimate goal of the legislation is to find some balance and fairness that both lenders and borrowers can be happy with. Undoubtedly, there are costs associated with the use of credit cards that will have to be shared between consumers and lenders. The truth about these rising fees and interest rates is only beginning to see the light of day, but the new legislation will hopefully tip the scales back in favor of consumers.
Historically, credit card fees have been charged to consumers for breaking their contractual agreements with their lenders. Typical examples include over ingthe limit spending, and late payment fees. Credit card issuers have gotten the attention of consumer advocate groups for sharply increasing interest rates and adding fees on very short notice to the consumer. These practices have resulted in the government stepping in and introducing legislation to regulate and, in some cases, even eliminating some of these fees entirely.
According to industry experts, the advance notice and details about this new legislation have provided card issuers with ample time to prepare new tactics for staying profitable. Spiked interest rates, additional charges and annual fees have suddenly emerged out of nowhere on consumers’ credit card statements. Card issuers have been frenetically adding these “buffers” in an effort to realign their revenue stream with the new reality of stricter legislation set to take full effect in early 2010.
Many card issuers are trying to take advantage of the window still open prior to the new legislation taking effect as one last opportunity to take advantage of consumers before the reins get pulled in substantially. Financial institutions that issue credit cards will have significant financial restraints to deal with once the new legislation is in effect. Known as the Credit Card Accountability, Responsibility and Disclosure Act of 2009, the new legislation will put substantial restrictions on the ability of credit card companies to levy sharp interest rate increases or fee hikes on their customers.
The laws set to take effect early next year will not protect the consumer on every level. The time between now and then for consumers to manage their debt is crucial. Smart card holders will take a good long look at their situation and make efforts to keep balances low, study their statements and ensure that payments are made on time. Undoubtedly, lenders will be far more stringent and cautious when issuing any new credit cards. Rates are sure to increase and credit limits will be more dependent on income, similar to more traditional secured lending scenarios. Credit card companies will be forced to minimize their risks by being more selective under the new regulations.