Some credit card companies have side-stepped the new law…
The CARD Act of 2009 was designed to protect consumers from unfair credit card practices. The rules changed the way credit card companies could profit from their cardholders. The Federal Reserve isn’t too happy with the way some companies have side-stepped the law and is proposing clarifications in the language that will prevent companies from circumventing the intent of the law. Here are the loopholes they intend to close:
Card Act Loopholes:
- Promotional offers that prevent interest rate increase notifications: Some card issuers have gotten around the 45 day notice required when a cardholder’s rate is changed by applying a ‘promotional rebate’ which can be revoked at any time, resulting in an increased rate without the 45 day notice. For example, an agreement with an interest rate of 29.9% that includes a rebate of 70% of the finance charges can be discontinued at any time – in effect increasing their rate without advance notice.
- Harvester fees charged during the application process are not included in fee cap: Currently the CARD Act caps fees that can be charged during the first year of an account at 25% of the credit limit. Thus, an account with a $400 credit limit cannot be charged more than $100 in fees during the first year. Examples of these initial fees include: annual fees, administrative fees, security deposits and monthly maintenance fees. But some issuers weren’t including fees charged during the application process.
One example of this occurred when First Premier Bank started charging a $75 annual fee and a $95 processing fee on a card with a $300 credit limit. Although this offer is no longer available, the proposed changes would eliminate such practices. “Application and similar fees that a consumer is required to pay before a credit card account is opened are covered by the same limitations as fees charged during the first year after the account is opened,” according to a Fed Reserve press release.
- Household income no longer considered for approval: Credit card issuers would be required to consider a consumer’s independent, not household, income when opening a new credit card account. In an effort to protect consumers from being given credit limits they can’t afford, this proposal means individuals with minimal or no income would require a co-signer to open a new account.
The Federal Reserve says it will continue to review how the CARD Act is holding to its objective to protect consumers against unreasonable fees.
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