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Date July 13, 2009

Fight For Credit Card Regulations Not Over

The credit card bill signing into law was greeted with widespread support from consumers and consumer advocates. Many believed that the law would finally bring to close the era of predatory lending and other unfair practices from credit companies. However, many soon realized that a fundamental flaw in the bill would cost credit card holders even more: the nine month window before the credit card bill becomes active.

Fight For Credit Card Regulations Not OverWhile the credit card bill was signed last May, full activation of the bill would not begin until February of next year. The nine month reprieve for credit card companies was meant to give them enough time to change their business machineries to adapt to the new credit card legislations. Unfortunately, credit card companies soon made the nine month leeway a nine month open season to profiting as much as they can from credit card holders and establishing harsh and oppressive credit card rates and fees meant to ensure continued profitability for them when the credit card bill becomes active.

Now consumers are finding themselves in even more trouble than they were before the credit card bill became law. Interest rates are increasing almost by the week, the situation with fees are just as bad and credit companies are introducing even more fees added on to existing ones and available credit is being cut down as fast as credit card holders can pay off their debts. An even more ominous move by credit companies is moving their fixed rate credit cards to a variable rate. This will ensure that, even when the credit card bill is in place, the card holder’s interest rate will still fluctuate without any prior notice.

These happenings have alarmed many financial watchers, not the least of which is Senator Christopher Dodd. Chairman of the Senate Banking Committee, the senator was a supporter of the credit card bill when it was in debate at the Senate. Now, with the bill still inactive and credit companies taking advantage of their nine month leeway, he recently issued a request for an increase in government monitoring of the credit industry, writing a letter to the heads of the FDIC, the Office of Thrift supervision, the National Credit Union Administration, the comptroller of the currency and the Fed.

The senator is pushing for government regulators to move on to enforcing some of the laws in the credit card bill, given the current developments in the credit industry. His worry over the situation is quite valid as recent reports have shown that credit card companies are engaging in severely opportunistic and oppressive practices and are relatively unchallenged, being the ones charged with reviewing their own policies.

Date July 8, 2009

Interest Rates For Credit Cards Rising Before Credit Card Bill Comes

Many thought that the credit card bill would be the end of high interest rates and fees in credit cards, not least among them the lawmakers in Congress and the consumer advocates who backed the bill aggressively when it was still being debated.

Interest Rates For Credit Cards Rising Before Credit Card Bill ComesHowever, the leeway of several months that government has given credit card companies to adapt their business to the new legislation seems to have had a very nasty side effect. Now, credit card companies are using the available time to raise their interest rates and fees way ahead of the scheduled activation of the credit card bill on the first quarter of next year in preparation for stricter laws about arbitrary interest rate and fee changes. Needless to say, many are irked by the fact but are quite helpless about it.

Recently, Chase credit card holders found themselves burdened with a nasty surprise from their Chase credit cards. Chase raised the minimum monthly payment required from 2% to 5%.  As a result, many card holders were trapped between paying very high minimum monthly payments or getting their interest rates increased by several percentage points. Many of these card holders were also those who transferred their balances to Chase to take advantage of a low interest rate offer.

Chase, along with Discover also recently increased their maximum fee charges for balance transfers. Chase’s rate was originally at 3% while discover’s was at 4%. Both companies increased their rate to 5%. Carriers of Bank of America credit cards also saw an increase for cash advance and balance transfer fees of 4%, from a rate of 3%. The majority of credit card companies are also continuing to cut credit card limits for their customers while steadily increasing their interest rates. The rate of the credit cuts and interest fee increases have noticeably increased since January of this year.

According to experts, credit card holders can expect to see these kinds of practices from credit card companies until February, when the credit card bill becomes active. At the moment, credit card companies are under no pressure to stop these kinds of practices and can continue to increase rates while decreasing available credit without any penalties.

The situation is exactly what many feared would happen if the credit card companies were given too much time before the bill became active. Now that it is coming true, legislators are effectively powerless to stop the continuing onslaught of higher interest rates, higher monthly payments and dropping credits. Once the credit card bill becomes active early next year, credit will have become too expensive for regular consumers and they will have too look elsewhere for the privilege of paying in plastic.

Date June 28, 2009

Credit Card Protection: Not A Smart Move

The credit crisis has everyone worried about their financial stability. In this tough economic times, credit cards have become a vital life line for every American consumer. Thus, their worries about not being able to make the monthly payments and losing available credit is quite valid. It is also quite understandable why many American consumers are very interested in protecting their credit. However, one thing they should never do is get credit card protection. Here is why.

Credit Card Protection: Not A Smart MoveAmerican consumers have probably seen these offers for credit card payment protection plans smartly inserted along with their monthly bill statements. Most plans cost around fifty cents to the dollar for every balance of one hundred dollars to buy. According to the plane, when you are unable to pay off your bill, your payment protection plan will be activated. When it does, the plan will pay your bill’s minimum amount due or a fixed amount, depending on the plan. The plan will also help you avoid ruining your credit score because, when the plan becomes active, the credit company will not report the situation to the credit bureaus. Credit card companies are, ostensibly offering these plans to help you recover whenever you miss out on your monthly payments.

Consumer advocates are not impressed with credit protection plans, however. According to them, these plans are too costly to be of any benefit to consumers. Plus, they provide a false sense of security to credit card holders.

According to CEO of LowCards.com, a website offering credit card information, Bill Hardekopf, consumers who buy into these credit protection plans are liable to find themselves in deep trouble. While the credit protection plan does pay your bill when you can’t, it will not protect you from interest rate charges. The interest rate fees plus the upfront cost of the credit protection plan would only make your debts larger. Thus, in the event that you actually use your credit protection plan, you will end up in deeper financial trouble instead of the other way around.

Hardekopf elaborated that, if you carry a balance of ten thousand dollars, you would be paying a hundred dollars every month for the credit protection plan. This is already a considerable cost and, what’s more, this cost is added to your balance and you are earning interest because of it. “Just the sheer cost of it is probably the biggest knock against it.” Hardekopf said.

Another problem is that, while the plan will pay your bills if you go overdue, it probably won’t pay all of it.  That means that you are likely to accrue interests even with the credit protection plan in place.

Date May 31, 2009

Interchange Fees May Be Next Target for Legislation

The recent passage of the credit card bill from Congress was cause for celebration for credit cardholders, though the legislation itself won’t become active until nine months have passed. Now, the government is looking into other credit card practices that seem unfair to consumers and how best to legislate them.

Interchange Fees May Be Next Target for LegislationCurrently, the Government Accountability Office is studying credit card usage among American consumers. They are interested in one particular practice and its effect on merchants and credit cardholders: interchange fees.

Interchange fees are fees that merchants pay whenever a customer uses a credit card. Essentially, when a merchant’s customer uses his or her plastic to purchase an item, the bank of the merchant pays an interchange fee to the bank of the credit cardholder so that the transaction goes through. This is true not only for credit cards but also for debit cards as well. The interchange fee for every transaction is usually at 1% to 2% of the total amount of the credit cardholders’ purchase. Thus, for a transaction of $100, the merchant has to pay anywhere from $1 to $2.

Most people take interchange fees for granted, as they are often buried within their transactions. However, some are taking keen interest in them. Consumer advocates are very much aware of how much interchange fees affect daily purchases of credit cardholders. Merchants are also quite aware of them, being the group who has to shoulder the payment or pass it on to their customers. The credit card companies are also very much aware of the profits that they are getting from interchange fees. Although a 1% charge may seem minimal to the regular consumer, it can mean millions to a credit card company that sees profit from it from thousands of credit card transactions every day.

The recently passed Credit CARD bill (Credit Card Accountability, Responsibility and Disclosure Act) actually has a provision that can be used to address interchange fees. The provision requires investigation on fees that merchants have to pay so that their customers can use credit cards. The main thrust of the provision is to provide disclosure to consumers on the credit card industry’s practices.

Some have noted, however, that disclosure is not enough for change to happen. Although informing credit cardholders of credit card industry practices seems like a good first step, there is still a need for stronger legislation. It ultimately depends on whether there is a change in the way credit cardholders use their credit.