The US credit card business – reloaded
By: Rechtsanwalt (Attorney) Carsten Lexa, LL.M.
On August 13th, 2009, I wrote an article here on Commercial Law International about the “secrets” of the US credit card business and about how the existing rules make it hard for customers to pay off their credit card dept. Now, a new Goverment proposal tries to help customers to reduce their credit card debt more quickly.
The proposal centers around four major issues:
1. Credit card companies should be forced to allow customers to pay off their most expensive depts first. Currently, very often customers pay off their cheaper depts first and allow charges to accrue for higher interest rates.
2. Currently, a lot of US-Americans pay only the required minimum of their credit card balance each month – often as low as 2 percent of the balance. Many of them could pay more – but they don’t, even though the interest rate they are paying on their credit card balance is considerably higher than what they pay on other things and compared to what they’re getting in interest income from their savings account. According to the Goverment proposal the minimum monthly payment level would be increased. This should help to repay credit card depts faster.
3. Very often, credit card limits are increased by the credit card companies without prior consent from their customers. At first, this seems to be good, because the customers receive a bigger financial leeway. But on the other hand, because of the low minimum that must be paid each month and that is being paid by the customers, the debt on the credit card raises. The Goverment proposal would ban the practice of limit increases on credit cards or at least will require customers to opt in to increases.
4. The fine print of many credit card agreements say that credit card companies can change the interest rate (APR) at any time, for any reason, as long as they give 15 days’ or 30 days´ notice. Further explanations are not necessary. The Goverment proposal would impose tighter rules on increasing the interest rate on existing debt without an explanation that fulfills certain requirements.
It must be stressed that these four major issues are currently only parts of a Goverment proposal. Whether or not these issues will become law is not sure yet. Consultations on the changes to credit and store card regulation will run until January 19th, 2009. Then it will become clear whether or not the regulations on credit and store cards will help US-Americans to pay off their credit card debts more quickly.
For inquiries please contact the author: kontakt@kanzlei-lexa.de
