Beginning until July 2010, new credit card regulations become effective which are designed to protect consumers against arbitrary increases in interest rates and other unfair practices. There should be doubts however, if these new rules will really help at all.
Why would these doubts exist? For the same reason that rates on most cards continue to rise today, even as the Federal Reserve lowers interest rates. This usually causes lower interest rates for other types of financing, such as mortgages and auto loans.
Yet credit card rates continue to rise, even for customers who consistently pay on time. The bank might claim that a higher balance poses a greater credit risk, and therefore need to raise rates. They may also claim that they need to recoup losses from other charged-off accounts. They may claim nothing at all. The banks are not required to reveal why an interest rate changed on a credit card. The real reason a bank will raise interest rates is simple: Because they can. Period. The newly imposed regulations do not prevent this.
Credit card interest rates can change because there is no contract between the issuer and the user. Consider the difference between a these accounts, and a mortgage. With a mortgage, there is an enforceable contract with the terms and conditions completely laid out, which a borrower agrees to. Think of all the papers that were signed the last time you acquired a mortgage. Everything is spelled out.
Not with a credit card. There might be a signed application, but that's all. The terms and conditions were never agreed to up front by both parties. So the bank is free to change the terms at their whim. Imagine the interest on your home mortgage jumping from 6% to 26%, just because the payment arrived a day late. It cannot happen because that's not in the mortgage contract. But with a credit card, there is no actual contract.
So while the new federal regulation might look good on paper, there is not much enforceable consumer protection to it. If the banks feel like an account is not producing enough revenue for them, they will just create a new fee. Why would they do this? Because they can.
American consumers are caught in this trap. First, we are enticed to use their cards. Lured by their rewards and having a status symbol in our wallets, rather than actual money. Their advertisements lure us into believing what a wonderful life we can have by simply making our purchase using that plastic card with their bank name on it.
Then the balances start to build up. Then the interest charges build up. Then the fees are added on. All of which builds up higher balances. Then they will use your higher balances, as an excuse to raise your interest rates even higher, and charge more fees. The cycle does not stop.
There are many ways to break that cycle. First, get out of the game that the banks want us to play. The only winner in the credit card game is the bank. Stop using the cards. You will be surprised how much money can be saved by taking your cards out of your wallet.
Find ways to pay down, or even eliminate the debt. A debt elimination program may be utilized to walk away from the debt, without bankruptcy. This can be accomplished just once in your lifetime, but can lead to a fresh start in your financial life. It may surprise you to learn that life can be lived using cash, checks, and debit cards.
About the Author:
Billed as The True Debt Advisor (
TrueDebtAdvisor), Jim Vrana's mission is to educate and empower people to overcome their financial challenges. The time-tested legal procedures used to eliminate credit card debt have been used by thousands of people with tremendous success.
Contact:
Jim Vrana,
(800) 637-1785
TrueDebtAdvisor
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849
Date Published :
Jan 16 2009