Credit card consumers may be relieved to hear that President Obama and top economic officials will meet with the heads of 14 major banks to discuss unfair credit card practices. Since the beginning of the financial crisis credit card companies have implemented many practices to try to reduce their level of risk. Unfortunately most of these aggressive practices are putting Americans finances at higher risk as they continue to struggle with increased unemployment, loss of savings and other fallout associated with the recession.
With the possibility of tighter government regulation on the horizon administration officials would like bank executives to take action voluntarily but will point out that President Obama supports legislation to force regulations on unfair or predatory lending practices.
Here are a few of the issues that are likely to be addressed:
Increased Interest Rates- Many consumers are under the false impression that you are guaranteed your current interest rate unless you fail to meet your end of the credit card agreement. This is not the case, in fact many consumers have been caught off guard because credit card companies can raise the interest rate at any time for any reason. This is more frustrating when you consider the fact that the Federal government has brought short term interest rates close to 0% for banks who are borrowing money.
Slashing Credit Limits- In an effort to reduce the damage of customers defaulting on their credit card agreement, credit limits are being reduced- sometimes below the current balance on the consumers account. This can result in consumers being charged over the limit fees in addition to increasing the debt to credit ratio which accounts for 30% of your FICO credit score.
Closing Inactive Accounts- Consumers who have not used their credit card recently may be surprised to discover they no longer have that option at all. Credit card companies are closing inactive or unused accounts. Again, this increases the debt to credit ratio leaving many consumers taking a hit to their credit score.
Payment Allocation- Currently credit card companies apply consumer payments to low rate balances while higher rate balance continue to rack up interest charges which allows the balances to grow. New regulations would require any amount over the minimum payment to be applied to either higher interest rate balances or evenly distributed to all balances.
Targeting Students- Sallie Mae recently released survey results indicating more and more college students are using credit cards to pay for college expenses. As a result students are graduating college with not only student loans but also higher levels of debt which can make finding financial stability very difficult in post college years.