The US government passed a new law back in May 2009 regarding stricter credit card regulations which went into effect today, February 22, 2010. It is aimed at credit card issuers and will try to eliminate bad credit card practices and was set up to help protect vulnerable Americans who are already having trouble with their debt. The American government is hoping this will help millions of people get out of bad credit and debt problems from their credit cards and over-leveraged mortgages brought on by the global economic collapse, and the US housing crisis.
The new rules include:
- Credit card companies can’ increase the interest rate on credit cards already issues for 12 months, unless they’re already 60 days past due
- Payments made will need to apply to balances with the highest interest rates first
- Monthly bills will be updated to show how long it will take to pay off the credit card balance if only the minimum payments are made
- In order to cut down on late payment fees, statements will need to arrive at least 21 days before payment’s due versus the old limit of 14 days
While these are great initiatives to help protect consumers, there are still ways that the credit card companies can still affect card holders. There is no limit on the interest they can charge and they can still reduce the credit limit on card’s already issued and create new fees. President Obama says its not perfect but a good first step and hope it will cut down on unfair practices.
Canadian credit card regulations
New credit card regulations were fairly high profile last year when the government proposed changes to Canadian rules, but then it went quiet. All the mortgage and housing market news must have overshadowed the credit card changes, but we just looked on the Department of Finance website and the credit card regulations did go through.
Most of the regulations went into effect on Jan 1, 2010 while a few are delayed until September 1, 2010.
The new regulations include:
- Provide a summary box on credit contracts and application forms that sets out key features, such as interest rates and fees.
- Inform consumers how long it would take to fully repay their balance if they only make a minimum payment every month.
- Mandate an effective minimum 21-day, interest-free grace period on all new credit card purchases when a customer pays the outstanding balance in full.
- Lower interest costs by mandating allocations of payments in favour of the consumer.
- Require express consent for credit limit increases.
- Limit debt collection practices used by financial institutions.
- Prohibit over-the-limit fees solely arising from holds placed by merchants.
- Mandate advance disclosure of interest rate increases prior to their taking effect, even if this information had been included in the credit contract.
The regulations apply to credit cards issued by federally regulated institutions. Some provisions in the regulations have broader application to other financial products, such as fixed- and variable-rate loans and lines of credit.
We’ll do some more digging and find out which ones are already in effect and which changes will be in Sept 2010.