This is a guest post from Family Man at Build Tomorrow – Another Day of Life. He’s a married, 35 year old father of three who has some significant debt he is trying to pay off. He gave me this article, and since I don’t always keep up with current events I thought this was a great article to share.
Earlier this year the Federal Reserve proposed new rules for credit card companies. The major issuers immediately spoke out against the proposed rules, claiming that they would result in less competition, higher prices, and less choice for us the average consumer.
So what do these proposed rules mean for you? It first of all means that banks will have less opportunity to make changes to your account for arbitrary reasons. Some of these fundamental changes are as follows.
- Banks wouldn’t be able to hit you with a higher interest rate on debt you already owe.
- Prohibits “two cycle billing.” This is a practice that computes finance charges based on previous billing cycles.
- Banks would have to apply at least a portion of payments toward higher-interest rate debt. In the past issuers put payments consumers made toward cheaper debt, like balance transfers that generally had lower rates.
- Banks would have to provide consumers a reasonable amount of time to make payments.
- Credit Card Holds. The proposal would prohibit banks from imposing a fee when the credit limit is exceeded solely because a hold was placed on available credit. This can occur where the final dollar amount of a transaction was not known in advance (for example, when a consumer checks into a hotel, a hold is placed for the expected cost of the stay).
This potential rulemaking is a huge step in asserting consumer rights in the area of credit. Many at the fed believe this is a necessary step toward recovering the credit market. Will this limit some of the credit available to consumers? Absolutely! Over the last 9 years credit was made so readily available to individuals, that could not afford it, it has become a major contributor to todayâ€™s economy. These rules will tighten lending to those who can afford to pay it back. While that may seem more restrictive it is more in line with consumer sentiment.
The Federal Reserve needs your help. Public comments are being requested before August 4, 2008. I plan to post mine. I believe that interest rates should be capped at prime plus 12%. This will allow those in debt to recover, while still allowing banks to make money. As consumers get out of debt, they will have more disposable income, and spend more (cash I hope). If you agree I hope you will make your voice heard.
Go to federalreserve.gov and click on “consumer information” at the top of the page. Then click on “Proposed Rules for Credit Cards and Overdraft Services” and scroll to the bottom of the page. Look for Regulation AA and click on submit a comment.
Direct link here.
Thanks, Family Man for the guest post!