The Federal Reserve took great strides in protecting the rights of consumers by approving new rules for the credit card industry. They didn't cover everything, though. Here are a few things the Feds overlooked.
1. They don't take effect until July 1, 2010.
With the way credit card issuers have been increasing interest rates lately, consumers need relief now. By the time the rules take effect, who knows how much debt trouble consumers could be in. Credit card companies have more than enough time to completely empty the pockets of struggling consumers.2. No mention of surprise credit limit cuts.
While credit card issuers will be required to give a 45-day advanced notice of interest rate hikes, there was no mention of notice for credit limit cuts, which are equally important. When credit card issuers cut credit limits, the cardholder's credit limit could be hurt because their credit utilization rises.3. Subprime credit card fees are still high.
Under the new rule, subprime credit cards can only charge fees 50% of the credit limit or less. A $250 fee on a $500 credit card is still pretty high. The rule does soften the effect by restricting the credit card issuer from charging the entire 50% at one time. Instead, the fee must be spread out over several billing cycles.4. People with low credit scores are squeezed out.
Without interest rate increases to compensate for the increased risk, credit card issuers are expected to become stricter with lending requirements. That leaves consumers with bad credit with few options - expensive subprime credit cards, secured credit cards, prepaid credit cards, or no credit cards at all.5. Universal default is still out there.
The new rules lessen the effect of universal default, but they don't prohibit the practice all together. Credit card issuers now increase your interest rate "at almost anytime, for any reason." They can't increase interest rates during the first year of your credit card or without giving a 45-day advanced notice. How restrictive is that?6. No limits on penalty rate increases.
There still isn't a universal limit to how high credit card issuers can raise interest rates. Though some states have laws, credit card issuers can get around them by locating their businesses in states where the interest rate laws are lax - like Delaware, for example. Let's hope competition among the banks keeps interest rates at a reasonable level because the Feds didn't do it for us.
