Credit Card Reform in the Works?
I don't know how I missed this (although most of my research has been in balance chasing), but it looks like the Federal Reserve, Office of Thrift Supervision, and the NCUA are voting tomorrow on some major credit reforms including:
- Prohibiting credit cards from raising interest rates unless the cardholder is more than 30 days late.
- Change how banks are allowed to apply payments when there are two APRs on the account (paying the higher APR balance first)
- Banning "universal default" interest rate hikes
- Banning "double-cycle" billing.
- Prohibiting companies from charging fees or overdraft protection unless customers are given the chance to opt out (WaPo makes it sound like this last one won't pass).
It's about time, and I really hope these pass! I haven't found a recommended timeline for implementation, but if the Fed is willing to drop interest rates like they did yesterday then maybe there's hope. It makes sense - if we're not being hamstrung on interest rates, then maybe we'll spend more money.
Of course there's always the possibility that chasing down balances will become more common as lenders, now unable to hike up interest rates, try to dump higher-risk customers from their books.
On the surface that doesn't sound like a bad idea - if you can't afford high balances, then maybe you shouldn't have one - but the fact is, credit companies are improperly profiling people when deciding who to chase down. If you live in an area with a lot of foreclosures, if you work in an industry with a lot of lay-offs, if you start charging small things like coffee or groceries, or if you make unusual charges like to a therapist or marriage counselor (indicating that your life circumstances have changed), you can see your limit lowered to just above your existing balance. Then the domino effect: your debt to credit ratio goes up, your FICO score goes down, and your interest rates across the board go up.
So, while the reforms on the table are outstanding, I would like to see this last practice addressed as well.
