As if there is not enough controversy over Interchange Rates charged to merchants, we now have to deal with consumer credit cards interest rates increasing drastically without notice. Some consumer spending experts say this may hinder spending even more this holiday season. What is our government doing to fix the issue?
Federal regulators jumped into action and passed laws to protect consumers from increased interest rates on existing account balances. Government rules seem to run at a snail’s pace as these laws will not take effect until July 1st2010; that’s a lot of money in the banks’ pockets in the interim. Millions of card holders will get raked over the coals, paying high fees on previously made purchases until these laws kick in.
Credit card companies will still be able to raise rates on new credit cards, future purchases or cash advances. Finally, the Federal Reserve and National Credit Union Administration are cracking down on arbitrary hikes in interest rates. It would seem that we have learned a lot from subprime lending. These rules will also stop the issuing of credit cards to people that all ready have a large amount of debt, and who were previously getting approved by banks for high interest rate cards.
Some of the new rules include:
Credit card companies take huge risks in issuing credit to people who have below average credit, so they hike up the interest rate for everyone to make up for their losses. Because these guidelines are being tightened, banks will have to be more cautious as to whom they give credit to. With less credit circulating around, we will ultimately have fewer purchases at retail locations. Hardest hit will be the online businesses since some purchases can only be made using a credit card. The other areas it will affect will be revealed in time.