Batten Down The Hatches – Credit Card Pirates Are Coming

Shiver me timbers! The government shake down on credit companies is in full swing, as of today.

The CARD Act, which President Barack Obama signed May 22, dramatically changes the way card issuers can profit from plastic.

Although the dramatic changes came into affect today, credit  card companies have been preparing since May:

For example, 35 percent of the card offers mailed to U.S. households in the fourth quarter of last year carried annual fees. That’s the highest percentage in 10 years, according to the marketing research firm Synovate. Those offers had an average annual interest rate of 13.5 percent, the highest in five years.

“What this says to the card industry is, ‘Look, Congress has reset the playing field. The rules of the game have changed. Some of these practices that we know were harming consumers have to stop,’ ” said Nick Bourke, the manager of the Safe Credit Cards Project at the Pew Charitable Trusts. “Now the ball goes back to the industry, and they have to decide how to evolve their product.”

‘how to evolve their product’ – aka find new ways of screwing the consumer. Although new laws are designed to protect the consumer, credit card companies have been screwing customers for years. As the card companies find new ways of exploiting customers, will it continue to take the government years to respond? For an example, let’s look at one new point of protection:

If delinquent cardholders pay on time for six straight months, the law requires that their higher penalty rates be lowered to their previous interest rates.

This will save cardholders at least $10 billion a year, according to Bourke. It’s the most important change for consumers because it bans a number of punitive rate hikes on existing balances, including the infamous “universal default,” in which a late payment on one account can trigger a rate increase on another one.

But the protection is limited, since credit card companies have already planned the work around.

It’s important to note, however, that lenders can still impose universal defaults and other penalty rate increases on new purchases. The CARD Act exempts only existing balances from such increases.

This is certainly a little bit better, but there is a long way to go – especially if the legislators will be slow to react. By implementing these new laws, some wonder if the government is just stirring the pot, and subsequently forcing credit card companies into using trickier methods of exploitation.

Have you fallen victim to a new credit card tactic? Please share the details in the comments below.

article | New credit card rules start Monday.
photo | ohadweb