Federal regulators have just enacted new rules for the credit card industry that will are designed to protect consumers against unfair practices. But will they really help at all?
Finally, some new credit card regulations have been passed by federal regulators in their attempt to protect consumers against arbitrary increases in interest rates and other unfair practices. The new rules are not effective until July 2010, and we should wonder if they will really help at all.
The credit card industry is one of the most despised sectors of our business community when it comes to service and unfair business practices. And with good reason too. Credit card companies play with us like they are the rulers of the kingdom, and we are mere peasants. They act that way because, quite frankly, that is exactly the way our credit driven society has become.
While the new federal regulation might look good on paper, there is not much enforceable consumer protection to it. A credit card company is just an extension of a bank. And banks are in business to obtain your money, any way they can. If the banks feel like an account is not producing enough revenue for them, they will just create a new fee or raise interest rates. Why would they do this? Because they can. The new regulations don't prohibit any new fees or raising interest rates, unless they are "unfair".
Well "unfair" is a matter of opinion. Unless new regulations are in place that specifically spell out exactly what fees may be charged, and exact monetary limits on those fees, then the banks are still free to charge just about anything they want. The same applies to interest rates. How high is too high? That's a matter of opinion.
There is one new rule that can actually help the consumer, which is the inability for the credit card company to raise the interest rate on previous balances. However, this new restriction will really only benefit someone who is serious about paying down, or paying off, their credit card balance. A cardholder should be willing to put that card away and simply make payments on it. Otherwise, the bank will simply raise interest rates even higher on new purchases.
It could also prove very difficult to verify their interest calculations. The interest rate could change multiple times. The more separate interest rates on a single card, the more confusing the interest calculation can become. A total overall monthly statement balance may consist of many separate balances, each subject to a different rate. How can a consumer audit their account to be sure the correct interest was charged to the correct balance? Combine this with determining how much of the monthly payment was applied to each separate balance, and it could all be very confusing if you want to verify that the bank is playing fairly. Confusion of the consumer is the advantage for the bank.
In addition, what about the interest portion of your balance. Remember, interest is calculated on the total balance, usually a total daily balance. That new interest is added to an old balance, creating a new overall balance. So the credit card company is charging interest on interest, which is nothing new. This is one reason why balances can skyrocket out of control.
So if an interest rate is frozen on a previous balance, what about the new interest charges on those older previous balances? What rate is that subject to? Rest assured that the bank will claim that new interest is a new charge, and subject to a new and higher rate.
New rules or old, the credit card company will still get their money. Actually, your money. The only way to stop being a victim of their practices it is to get out of their game. Eliminate the debt and use cash or debit cards for your purchases. The money you save, will be your own.
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