Lending Club Blog

New Credit Card Rules Gain Approval

The abusive practices employed by credit card companies are a recurring topic of conversation here on the Lending Club blog. That’s why I’m so pleased to announce that some relief for cardholders is finally on the way.

On December 18th, the Federal Reserve Board, in conjunction with the Office of Thrift Supervision and the National Credit Union Administration, approved some significant changes to the rules that must be followed by card issuers. Many of the provisions are similar to those proposed in the Credit Cardholders Bill of Rights, which the House of Representatives passed in September.

Here are the highlights of the new rules:

Universal Default is Finally Being Banned

Credit card companies will not be allowed to raise rates based on our payment history on other accounts. Only events related to the account in question can affect its interest rate. This is a major victory for cardholders, as this practice was especially abusive.

Grace Period is Extended

Statements must be mailed out at least 25 days before the due date vs. the minimum 14 days required today. This should help cardholders to avoid interest and fees when they are unable to pay the bill as soon as it arrives.

Payments Apply To Highest Interest Rate First

As I mentioned in my post The Balance Transfer Game, payments have historically applied to the lowest interest rate first. So high interest balances (typically charged on cash advances and balance transfers whose teaser rates have expired) could only be paid down after all lower interest rate balances were paid off in full.

Interest Rate Changes Take Longer Before Going into Effect

Rates cannot be changed without reason and cardholders must be given 45 days notice (vs. 15 today) before an interest rate hike can occur. Cardholders will be able to opt out of unwanted changes in terms by canceling their accounts or paying off balances under the original terms.

Card issuers are not required to comply with the changes outlined by these new regulations until July of 2010, so be extra careful with your credit card until then. Still, these changes represent a major victory for consumers who have long decried the abusive practices of card issuers. Credit cards may still be a necessary evil in the future, but as a result of this reform they stand to be less evil.

Have you suffered from any of the abusive practices that will soon be banned?

Tuesday, February 3rd, 2009 at 10:11 am

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