The Credit Card Accountability and Discloser Act of 2009 brought new amendments during 2010. The Federal Reserve have now proposed another new change known as Regulation Z which will bring more consumer protection to credit card users. Card users have already seen amendments to clarify payment dates; the reduction in late payment fees; and the necessity of lenders to give 45 days written notice to customers before arbitrarily increasing interest rates.
More clarity has already been introduced as lenders must now supply information on customer statements advising of the effect of making only minimum payments, and how long it would take to clear a balance down with accrued interest. Laws regarding the issuance of credit cards to students were introduced so that people under 21 could no longer obtain credit cards without either a proven income or a co-signer.
Amendments were introduced which prevented lenders charging fees of more than 25% of the available credit granted. Each of these amendments was in the consumers’ interests and intended to curb bad practices by lenders.
Regulation Z will bring yet more changes. Lenders will no longer have the right to withdraw promotional interest rates unless customers become 60 days delinquent on their accounts. This will mean the disappearing promotional rate will no longer catch users out if they are late on their payments. They will of course still be subject to a late payment charge.
In response to tighter lending requirements, new applicants and card holders who wish to increase their credit limit must now be assessed on their independent income rather than household income. This is to ensure that there is more responsible assessment of a card holder’s ability to make the payments.
Another new law will come into effect on 31/1/2011 regarding the sale of pre-paid debit and credit cards, gift certificates and cards. Retailers will not be allowed to sell any cards where they are unable to disclose to the purchaser what the cards expiration date will be. This will put an end to useless expired cards being sold. Those purchasing them as gifts will know that their gift is valid and will be accepted.
The amendment which was previously included in the Act regarding a 25% limit on fees as part of the credit limit were imaginatively interpreted by some sub prime lenders. They abided by the new law by charging exactly 25% of the available credit line in fees. However they decided that if they charged an application fee which had to be paid before the credit card was opened it could not be considered part of the credit limit.
Applying a hefty application fee before the card was issued got round the law neatly and meant that sub prime borrowers were paying fees of 25% of available credit and an application fee of close to $100.
Regulation Z will put a stop to this by defining all fees applied as being limited to 25% of the credit limit, and thus put an end to sub prime lenders flouting the intent of the law as they have been doing. The introduction of Regulation Z shows that the Federal Reserve Board have been monitoring the amendments they previously introduced and have moved to close these loop holes which were allowing lenders to continue sharp practices.
Source: The Federal Reserve