Before you sign up for a credit card, check out the sweeping regulations in the form of the Credit Card Bill of Rights, which the Fed has passed.
The credit card companies and banks are at it again. Our esteemed financial institutions are in the news once more, not for bugging the government for more handouts, but for waking the ire of many credit card consumers who feel they’re being ripped off by unfair practices by their banks.
The latest bank in hot water? Citigroup, which is now under fire for the practice of “rate-jacking”, described as those sudden rate hikes that hit your credit card account with no warning. Apparently, this can happen even if you sport a clean and solid credit rating and good payment history.
Credit Card Company Practices
I suppose this shouldn’t be a huge surprise coming from our beloved credit card companies. After all, here are a few of their recent antics: when the housing boom was going on, these same banks raised the credit limits, encouraged you to use credit cards to reduce your mortgage, raised fees (while hooking customers via good rate offers) and packaged risky loans to investors. These days, two of the most reviled credit card practices are rate-jacking (they hit your rates) and shortening of the grace period or billing cycle (they hit you with fees).
Sounds rough? Well then, what can we do to protect ourselves? Here are a few suggestions:
1. Know the Credit Card Bill of Rights.
Enter, the Credit Card Bill of Rights, which has been under scrutiny by the Senate for the last 4 years, its fate debated upon by consumer advocates, and the banks and credit card companies in bed with the political powers-that-be who make the regulatory decisions. Well, just when you thought this was all a lost cause for us poor card holders, the Fed finally passes these regulations as credit card rule reforms:
- Credit card companies will not be allowed to raise rates based on our payment history on other accounts.
- We’re given more time to pay our bills — 25 calendar days (some reports say 21 days) grace period vs the minimum 14 days required today.
- Abrupt interest rate hikes will be banned; cardholders will be able to opt out of unwanted changes in terms. To opt out, we’ll be able to cancel our accounts or pay off our balances under original terms.
- We’ll be given more time to consider options when term and rate changes occur.
- Your card payment will be favorably allocated towards your balance (higher interest charges first).
- As consumers, we’ll be able to set or fix our own credit limits.
- The definition of “due date” is much more specific.
- Some fees will be limited.
This is the kind of medicine we need to survive a recession, though the banks have complained that this is just a form of subsidy for risky customers. Tough.
2. Deal with credit card companies that best comply with the “Bill of Rights”.
The Fed rules won’t be effective till July 1, 2010, so credit card companies still have time to rake us over the coals with their various ploys. The best we can do is to work with banks and companies that are more sensitive to these rules and who play by them even before they go into effect. Some such prominent companies are American Express, Discover, Chase and Capital One.
3. Manage our credit card usage.
Let’s remember that credit cards are but financial tools that are supposed to make our financial lives easier rather than problematic. At least, that’s how I see it! Some ways I make sure that credit card debt doesn’t bite me in the rear:
- I limit the cards I carry.
- I limit my overall debt balance.
- I pay my balance in full every month.
- I always pay on time.
That’s it! Doing so allows me to take control of my credit card situation and helps me to avoid becoming a debt slave.
In the end, whether or not the government works to legislate laws that favor consumer protection or seeks to regulate banks or the financial industry, we’re all ultimately responsible for our own finances. Our financial situation and success are nobody else’s responsibilities but our own, so do your due diligence and use leverage with care.
Copyright © 2008 The Digerati Life. All Rights Reserved.