CREDIT CARD INDUSTRY FIND ADDITIONAL WAYS TO EARN PROFITS

By Candice Choi

THE ASSOCIATED PRESS

 

 

The overhaul of the credit-card industry is being hailed as a triumph for long-abused consumers. But before you start banking on falling interest rates or vanishing fees, you might want to read the fine print.

Credit-card legislation that Congress sent President Obama on Wednesday bans certain practices by card issuers, but there's still no limit on the charges that can come with your monthly statement. And it's likely credit-card companies will start searching for additional ways to earn profits.

Here are some questions and answers about protections the bill spells out — and others that it doesn't.

Q: What practices are still allowed that I should be aware of?

A: The bill doesn't cap interest rates, as some lawmakers had hoped it would. While lenders generally can no longer raise rates on existing balances — at least until the cardholder is very late with payments — they can still raise them going forward.

Q: What if I always paid my bills on time?

A: There will likely be higher fees and interest rates across the board to make up for lost profit.

Card issuers in the past few months have already started raising fees for services such as balance transfers and cash advances. It's a trend that's likely to continue in the near future.

Card issuers also might start charging higher rates at the outset, when a customer gets a new card.

Q: What can I expect to happen in the next nine months?

A: Be on the lookout for any letters from your credit-card company. They could be notifications about rate or fee increases as card issuers prepare to get in compliance with the new bill.

Q: So what specific practices DOES the bill ban?

A: Card issuers will no longer be able to raise interest rates on existing balances. The exception is if a payment is 60 days late; at that point, there's no cap on how much they can hike rates. If the cardholder pays the minimum balance on time, though, the lender would be required to restore the lower rate after six months.

Among other restrictions:

• Consumers will have to get 45 days' notice and an explanation before their interest rate could be increased.

• If a company uses "risk-based pricing" to raise rates on riskier borrowers, they have to use that same methodology to lower rates when appropriate.

• The Federal Reserve in coming months will determine what constitutes "reasonable and proportional" penalty fees. This might include a cap on the dollar amount card issuers could charge for penalties such as late fees.

• Card issuers can charge a fee for over-the-phone payments only if you speak with a live operator.

• Those 21 and under will need to show they have an independent source of income to get a credit card. Otherwise, they will need a co-signer.

 

Posted by George Puckett-Mexico-My Space