Good News for Consumers Regarding Credit Cards

We’ve previously discussed how the tightening of the credit markets is affecting consumers’ credit lines, and how these changes can negatively impact your credit score. Finally, there is some good news coming down the pipe regarding what credit card companies can and can’t do to you.

The Senate Banking Committee is moving forward with reforms to many prevalent credit card practices that will restrict penalties, rates and charges, while providing more information in disclosures, as well as protecting young users of credit cards.

Here are a few highlights

• Prohibit “universal default,” a practice through which issuers use a consumer’s history with another creditor to raise interest rates
• Prohibit “anytime, any reason” hikes in rates
• Prohibit charging interest on debt that has been repaid
• Require 45 days of notice before any rate increase
• Require full disclosure in statements of payment due dates and late-payment penalties
• Prohibit issuing credit cards to consumers under 21 unless they show they can repay the debt, or complete a certified financial literacy course
• Prohibit double-cycle billing, a practice in which charges are computed based on outstanding balances in billing cycles before the most recent cycle
• Limit certain abusive fees and penalties, such as charging interest on credit-card transaction fees, or charging a fee to allow a consumer to pay a credit-card debt

With so many consumers being pinched by the recent credit cutbacks, these new regulations bring much needed relief to those carrying significant balances on their cards. In fact, the House is working on their version of this bill, and the Federal Reserve has already approved their own set of credit card rules late last year. While the Fed’s rules go into effect July 1, 2010, it is very likely that the House or Senate version of this bill will be approved this year. So while these new restrictions are not yet in effect, they soon will be. We’ll be keeping tabs on these new restrictions and will post an update when there is more news.