We support reforms to the financial marketplace to curb bad practices by banks and lenders.
The Federal Reserve has issued the final regulations for the last provisions of the CARD Act which go into effect on August 22nd, including limiting the size of penalty fees that banks can charge credit card customers and requiring banks to periodically re-evaluate interest rate hikes to see if higher rates are still justified.
The Fed’s proposal on these provisions came out in March and CU commented on the proposal, along with thousands of consumers, highlighting ways to strengthen the proposal. Read CU’s statement.
Here is a summary of the new rule:
Reevaluation of Rate Increases
When an issuer raises a consumer’s interest rate based factors such as credit risk or market conditions, it must review the increase every 6 months and reduce the rate if appropriate.
Issuers must review all future rate increases as well as rate increases made since January 1, 2009.
For rates raised between January 1, 2009 and February 21, 2010 for reasons that were not specific to the customer (ex: market conditions), card issuers may not keep rates elevated solely because market conditions or the economy has not improved. Instead, the issuer must review the rate using the same factors currently used in setting the APR on similar new card accounts. For individuals who saw substantial rate increases between these dates, this review may result in some relief if new card accounts are being charged lower rates.
For all other rate reviews the card issuer may review either:
• The same factors on which the original increased was based; OR
• The factors currently considered in setting the APR on similar new card accounts.
The review is not required for rates that have increased because of a change in the variable rate or an expiration of a promotional rate.
The first review must be completed by February 22, 2011.
Limitations on penalty fees
These practices are prohibited:
• A penalty fee can never exceed the dollar amount associated with the conduct. Example: A late fee cannot exceed the amount of a minimum payment which was paid late.
• Multiple penalty fees can not be charged for the same event.
• No fees for declined transactions, account inactivity, or account closure.
A penalty rate on your credit card account can be no more than $25 for the first violation of a particular type and no more than $35 for additional violations of the same type during the following six month period. These amounts will adjust annually for inflation and are subject to the above prohibitions.
Example: If you pay a late $20 minimum payment, the bank cannot charge you more than a $20 penalty fee. If your late minimum payment was $40, the bank can only charge you $25 if it’s the first late payment, but $35 for subsequent minimum payments in a six month period.
A bank can charge more than the above fee caps, if it can show that the amount of the fee is proportional to the total costs incurred by the issuer for that particular violation. Cost must be reevaluated every 12 months and are subject to the above prohibitions.
For charge card accounts which are due in full at each billing cycle, then a late fee can be applied after two missed payments, which equals 3% of the delinquent balance.
>No fees for account inactivity
The banks already found a way around this. Instead of charging for account inactivity, several banks have recently added $60 annual fees for charge cards that they will waive if you charge more than a certain amount in a year.
This is a small start…However, it’s too little too late.
Now they need to tackle how credit rating is handled!!!!
Is it legal for the bank to change the rate in your credit card from a fixed rate to a variable rate without giving you an “opt-out” option?
Since interest rates have no where to go but up, this amounts to a sure rate increase when the prime rate starts going up.
In any event, it is a change in the contract that affects the existing balance without giving the cardholder a chance to “opt out”
this has to be a joke, hey, consumers union, do your homework and get real, my credit card companies sent me a change in policy letter before that bill was signed with new charges that not only got them around the new laws but increased their income as well…..nothings changed, the bankers still are in charge….need it explained? watch a little movie called “the international” with clive owen, it explaines a lot.
How about putting a cap on interest rates? How about stopping the banks’ practice of repeatedly making “inquiries” about your accounts, then citing “too many inquiries” as a reason to lower your credit limit, or raise your rate? How about when you pay the balance down, then they lower your limit or cancel the card altogether because you are almost maxed out, when it’s their actions that maxed you out!! Everything they do is to damage your credit rating. Even if you’ve always paid more than the minimum, always paid on time, or paid off, they’ll still cancel you, as if the consumer is in the wrong for faithfully fulfilling the contract. They cause people with perfect or almost perfect credit to have their scores lowered because of these tactics.
As soon as stimulus was passed and banks received TARP money, they immediately raised rates to gouging interest eg: Capital One, Chase, Bank of America. Companies that were not banks became banks, as American Express and Goldman Sachs, to get TARP money. Then, AE raised interest rates tremendously and have never lowered them. AE is not a bank. And it should not be a bank. Banks took the TARP money, had 0% interest, bought treasuries, made money on the float, purchased other banks eg: Capital One bought Chevy Chase Bank, Bank of America bought Countrywide, Merrill Lynch, WElls Fargo bought Wachovia. They did not loan any money for homes or businesses as TARP was meant to be. They enriched themselves by gouging credit card users with enormous interest rates (Capital One 17.9% and 24.9%), reneged on making home loans and funding small businesses. WE have a very corrupt government for allowing stimulus money to shore up the banks and companies to become banks. It is all about money Congress and the President get from corporations, unions, etc. It is not about the people. It is not about jobs. All banks should pay a tax on money that was loaned in the TARP to shore up the deficit. All credit card issuers should greatly lower interest card rates or else they are like the “Mafia”. There is no one in this government to protect average, hard working Americans. It is all about corruption from our elected officials.
The entire credit card industry is a fraud. The banks don’t loan you any money. Ask to see their ledgers. If they give you a line of credit, they should show a debit on their accounts. But they don’t, because you yourself create the money when you sign up for a credit card. It’s your money. There’s no “valuable consideration” given by the bank.
And to ask the Federal Reserve, which itself is a private bank, to police the banks? Ha ha. That’s a good one.
You folks with credit cards need to cut them up and get rid of the debt. The banks would crash if there weren’t people sweating for a paycheck and handing it over to the banks in the form of interest.
The bank creates no money–lends no money–when they issue you a credit card, but they take interest payments (federal reserve notes) you actually earn through your labor. The banks are criminals and the lawyers and courts all know it, so don’t count on them to help you.
This is the start in something that should have been done 10 years ago. Cap the interest rates to the prime with a life time cap of ( as an example 20%).Credit card companys need to be responcible if you get more than 4 lates in one month they are to only charge you only a maxiumun of $100. in one year or cancel you card.
Credit card rates/fees have not come down, and they won’t. Loan sharks didn’t make this kind of interest 20-30 years ago. Their is always a way around the new laws.
While some of these “reforms” sound great on paper, just try to get a conventional mortgage loan with less than a 630 score, and 10% down. While there are 5 pct down loans available, you can’t get the mortgage insurance for them. Many people who want to refinance to a lower rate can’t because they can’t meet the new requirements and have little or no equity in their homes. We are just pawns in the game of life at this point.
Get out of debit as quick as you can, pay with cash if you have it. Time to hunker down, taxes are going up to pay for bailouts, healthcare, decline in property values, alt. energy, more regulation etc. I don’t think this is the “Change” people “Hoped” for.
Watching the news the other day, they noted that nothing really had been done regarding interest rates. The banks got their bailouts, and we are the ones being penalized. If rates don’t come down, that will surely put the brakes on stimulating the economy. Hopefully there wont be a next time, but if there is, lets not put the cart before the horse. Make the banks drop mortgage, car and card rates in half, before they are ever helped again. With the surplus of money being saved by the Consumer, the economy would rebound sooner! Trickle down Economics has only worked for the haves, not the have nots.
Getting rid of Universal Default was the only win.
Everybody KNOWS that they will remain financially harmed by the actions credit card issuers took just 24 months ago by raising our interest rates and payments to the ceiling and not negotiating downward those new high cost debts which jeopardized our ability to pay for our mortgage(s), auto, insurance(s), child support, child care, medical costs, prescriptions and other debts associated with our ability to survive.
Now with lower credit scores, some with garnishments from these same credit card companies as a result of the banks refusal to negotiate reduction in cost of new monthly payments, the same consumers will suffer 7 to 13 years with high cost loans and most likely will not be able to purchase real estate.
The costs associated with the results of the rate and payment hikes are endless to the consumer.
Politicians rip consumers off when they won’t try to resolve the real problems which ail us.
IF YOU TRIED TO NEGOTIATE WITH YOUR CREDIT CARD COMPANY AND THEY REFUSED TO PROVIDE AN AFFORDABLE SOLUTION WRITE ME AT LAURAUSA@YAHOO.COM
It’s MUCH TOO LITTLE AND MUCH TOO LATE!!!!! This is nothing but an INSULT TO ALL CONSUMERS. The loopholes for the pampered rich corporations were PURPOSELY put in place by bought and paid for politicians so they can get around these new “regulations”. It’s all a bad joke and the joke is on us. Ronald Reagan would be overjoyed to see all this because after all, he’s the one that started all of this corporate deregulation along with the assault on the middle class and the poor. Welcome to the new corporate America.
You mentioned a new Consumer agency to protect the rights of consumers, but you failed to mention that this new agency will be under the jurisdiction of the FEDERAL RESERVE. That doesn’t sound like an independent agency to me.
These Companies have shown Record Profits for years. Why is it that Republicans in Congress don’t seem to care about us”little People”? How come 2/3 of Companies pay NO Income Tax, in fact they get Subsidies, which is Taxpayer Money!!! The Little People pay usury rates, and those who are least able to afford credit are given the Higher Interest rate,once again, no help from Republicans. The interest from those TARP loans sure didn’t go towards helping the Card holders.Most Bankruptcies are from Health care costs and then they send you to class for being “foolish in spending”. Again, Republicans blocked Health Care and vow to undo the Legislation,except the part where you pay to have Health Insurance…That’s a Republican Idea that Obama included to gain support from them.LOL Why do People vote for these Anti-Taxpayer Republican Lawmakers??? The World Bank is run by Gangsters. They destroy Countries or Don’t if they play nice. It’s sickening how they ruin “little people” while they live high off the Hog!
These Companies have shown Record Profits for years. Why is it that Republicans in Congress don’t seem to care about us”little People”? How come 2/3 of Companies pay NO Income Tax, in fact they get Subsidies, which is Taxpayer Money!!! The Little People pay usury rates, and those who are least able to afford credit are given the Higher Interest rate,once again, no help from Republicans. The interest from those TARP loans sure didn’t go towards helping the Card holders.Most Bankruptcies are from Health care costs and then they send you to class for being “foolish in spending”. Again, Republicans blocked Health Care and vow to undo the Legislation,except the part where you pay to have Health Insurance…That’s a Republican Idea that Obama included to gain support from them.LOL Why do People vote for these Anti-Taxpayer Republican Lawmakers??? The World Bank is run by Gangsters. They destroy Countries or Don’t if they play nice. It’s sickening how they ruin “little people” while they live high off the Hog!
To answer the question posed by Rafael above, you have a right to opt out if the bank is changing your rate from fixed to variable. The notice of this right must be included with the 45 days notice that they are changing your rate from fixed to variable. You must opt-out within 45 days, before the new rate goes into effect.
Responding to Lauren Bowne’s response to Raphael — You are absolutely correct in your answer. You do have the right to opt out. However, read the following small print: If you do opt out because you don’t agree with the increased interest rate, they will summarily close your account. They give themselves that right. It’s a one way street. You have no option. Either go along with the new higher rate or your account is closed. Period. No debate. Simple. And, as we all know, a closed account results in a lowered credit rating. It will not be noted in your credit report that YOU opted out, just the fact that your credit account was closed. To a prospective lender this does not sit well. The consumer is “assumed” to be the defaulting party. The only recourse a consumer has in this situation is to pay off the credit card and never use it again. BUT the credit card companies have gotten around this one, too. Don’t use your card, incur an annual fee or an “inactivity fee”. Either way, we lose. This has to be changed.
Credit card company’s have been ripping the public off and taking advantage of the young adults to long already.
Let’s name names: Capital One just raised my credit card interest rate from 9.9% to 17.99%. When I called them to complain, I was told that a “previously announced promotional interest rate” had expired. (Get it? PROMOTIONAL interest rate?) Balderdash! Sure, there was a note on my presvious month’s statement that this was going to happen, but I disregarded because as far as I knew, I had not participated in any promotional program. Furthermore, the 9.9% (fixed) rate had been in effect for years! I wrote to my Senator to ask for help and clarification of the new law. All I got back was a boiler-plate note thanking me for my concern over the banking situation… blah-blah-blah. Can you say, “Bend over and smile,” boys and girls?
I agree with everyone! AMEX advised we were only paying off the card and not using it, but if we used it they would retain the credit limit. We used the card and they dropped the credit limit!
Also AMEX: had a credit due, they deducted the $ from the vendor but refused to issue our credit-said it took too long. It took so long because of AMEX’s delay tactics. Have been paying off a Citibusiness card for 3 years from over $3000 to $715 now and never late, never paid minimum. They are closing the account. Obviously they kept reducing the credit line as we reduced the amount owed. AMEX has reduced our lines up to 7 times, and we were never late or paid the minimum. Issues with one credit card company should not affect other companies where there have been no problems.
I agree with joanne.Pay them off,cut them up.Start to live within your means and they will go away. We have to educate ourselves first,and then we can beat them. Everyone should read The creature from Jekyll Island.
Citibank changed my rate from 13.49% to 26% the month before the law took effect. My credit history with them is excellent and none of the interest increase factors noted in the article apply in my case.
In addition to the rate hike, other recent financial setbacks are making it impossible to pay down and eliminate my balance. Can anyone direct me to more detailed information on how to request a rate review by the bank? Thank you.
@ Steven’s quote: “Trickle down Economics has only worked for the haves, not the have nots.” My brother coined it “Trickle Up Economics”. heh.
I agree with all the comments above. Banks can borrow money from the FED at 0% or close to that so their rates to consumers should be 4-5% leaving them with a profit margin of 4-5%. And what ever happened to the Max rate of 18%-who allowed that to be changed??
No fees for declined transactions:
They are still charging fees for declined transactions,I just received an information from Bank of America where I can opt for cancel overdraft on my accout, but I have to pay $35 for each Returned Item Fee (NSF: non suficient funds).What can I do to stop this practice on Bank of America?
The whole mess started way back when Reagan passed the deregulation of banking in the 80′s. That gave the green light to banks to do whatever they wanted for whatever reason anytime.
With subsequent Republican administrations it got worse, to where credit cards turned into loansharks.
Yes there was a law that came into effect in February, but these crooks had ample time to raise the interest rates before that. Thus screwing all cardholders specially the unemployed. How can an unemployed pay the minimum payment on a card with 32% interest. Imposible so they have to default. Do the banks care no, why they got the tarp money. And they sell your debt to a collection co. at a discount but they still come out ahead. So consumers are filing for bankruptcy at a record high, losing their homes. All because of a system that was given permission to get out of control.