A year’s worth of credit card reform concluded Sunday as the last set of new credit card rules was enacted. Late payment fees and other penalties are the target of the most recent rule changes. Credit card reform started with the Charge card Accountability, Responsibility and Disclosure (CARD) Act for 2009. As with Sunday, all the brand new rules set forth within the legislation have now been enacted. Average penalty fees for late repayments under brand new federal laws can’t exceed $25.When new credit card rules have been implemented over the last year, credit card corporations have implemented huge interest rate increases in kind. Another rule needs them to justify those increases to federal regulators.
Increasing fines and rates of interest attract brand new rules
The final enactment with credit reform provisions on Aug. 22 means that consumers can’t be charged more than $25 for a overdue, they’re no longer charged for putting their cards in a drawer as well as they could see the interest rate jumps for the last year rolled back. CNN reports that credit card corporations must cut interest rates if the reasons they claim for the increases no longer apply. Federal regulators will review those reasons and enforce compliance with the law. However when it comes to the $25 past due fee restrict, the rules give banks a loophole to exploit: if they determine a cardholder’s late obligations are habitual, they can exceed the $25 limit by saying the increase is necessary to offset the economic impact with the late payment. More e! nforceable limits are possible with one more new rule that bars card-issuers from charging a penalty exceeding the minimum monthly payment, or a penalty exceeding the dollar amount of the violation of the credit limit.
Card companies determined by penalty costs
Credit card companies are facing a $3 billion hit to penalty fee revenues from the final round with new charge card guidelines. Reporting on the industry response to new rules, the Wall Street Journal said that charges on balance transfers, cash advances, overseas transactions and annual costs are already increasing. As a strategy to get around limits on late payment fines, cardholders can expect their minimum repayments to rise. Banks accustomed to reaping huge profits from penalty fees aren’t letting go effortlessly . A credit industry executive told the Journal that before the new credit card rules, credit card businesses collected about $11.4 billion in late fees. The windfall is forecasted to slip to merely $8.1 billion-a 29 percent decline.
Interest rate hikes do not curb spending
While the new credit card rules have been giving consumers some protection from excessive late fees, credit card businesses are jacking up rates of interest. An additional CNN report said that existing cardholders in the second quarter saw their interest rates rise to an average for 14.7 percent, 13.1 percent higher than last year . Synovate, the research division for Aegis Group, said that the current difference between the prime rate and the average cardholder rate of interest is 11.45 points-more than it has been in 22 years. The high rate of interest has not deterred consumers. In the second quarter their credit card use rose to the second-highest level ever.
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