Credit card debt relief has been one of the main areas of focus for the federal government in the past couple of years. Out of the many laws and regulations on credit card companies introduced by the government the ‘Credit Card Accountability Responsibility and Disclosure Act of 2009 is of considerable importance. This act has taken effect from end week of February 2010.
The malpractices adopted by the credit card companies to increase their returns are not unknown to the people in general. These practices tend to increase the total outstanding amount of the debtor. The new law attempts to provide debt relief to the consumers by restricting retroactive rate increases and issuing a ban on double cycle billing.
The Credit Card Accountability Responsibility and Disclosure Act is supposed to amend the Truth in Lending Act and also attempts to do away with the unfair and deceptive practices of the credit card companies. This brings down the debt burden of the consumers and prevents them from further defaulting.
There are many who are very happy with the new laws and regulations on the credit card companies. But there are many who believe that it will do more harm than good. Because of the restriction of retroactive rate increases the credit card companies will have to give up on a chunk of their profits. Being used to making as much as they do, the company will in turn find other avenues for rate increases to make up their losses. This involves a major bending of the law.
Under the new law the issuers are supposed to give a 45 days notice for rate increases to the consumers and in the first 12 months of issuing the card there should be no increases made. This may come as good news to new card holders but the ones who have been paying their dues regularly for years will find their charges going up (e.g. annual fee increase).
Other increases that the company charges to make up their loss are by increasing various fees (e.g. late payment fees). For example, for simple defaulting where the consumer used to pay (say) $35 will have to shell out $50.
There are other ways by which, the losses incurred because of the new laws and regulations on credit card companies are made up at the cost of the consumer. The annual fees and the transaction fees of the consumers can be increased very easily by providing a 45 days prior notice. Drastic changes have been made by the companies in the calculation of minimum amount payable by the consumers. In certain companies it has been increased by more than 50%.
For example if a consumer has $10000 as balance, he had been paying a minimum amount due of 2% i.e. $200. The companies are now in a position to increase this 2% to 5% which will result in the consumer paying $500. Therefore, the consumer ends up paying $300 more every month that he could otherwise have saved. This sudden increase may cause the consumer to default.
So, it can be seen that while the new law attempts to provide debt relief to a section of consumers, it increases the debt burden on the others. This too can be controlled if the credit card companies for the time being settle for lesser profit for greater good.