Last Thursday, the new Consumer Financial Protection Bureau launched its website, at www.consumerfinance.gov. The CFPB was created as a result of last year’s financial industry regulation legislation, the Dodd-Frank Act. The CFPB’s mission is threefold: to educate consumers and promote financial education; to enforce federal consumer financial laws; and to gather and analyze information so that consumers can be better protected.
Elizabeth Warren, who championed the CFPB, introduces a video that exemplifies why the CFPB was created. In it, a seventh grade teacher from Georgia was shocked to find that her credit card interest rate skyrocketed from 10.90% to 17.90% in one month – even though she always pad on time. The CFPB will enforce the Credit CARD Act, which combats unfair practices by credit card issuers.
The Federal Reserve has been working to implement some of the provisions of the 2009’s Credit CARD Act, and recently announced rules relating to credit card fees. According to a CNN Money report:
Consumers won’t have to fear being charged a fee for failing to use their credit cards.
Penalty fees can’t exceed the dollar amount incurred by the consumer’s violation that spurred the fee. For example, if a customer is late making a $20 minimum payment, the fee can’t exceed $20. A consumer who exceeds her credit limit by $5 cannot be charged an over-the-limit fee of more than $5.
Consumers will no longer face multiple penalty fees, if the violation was based on a single late payment.
The report went on to note that the Federal Reserve hasn’t issued regulations regarding interest rate increases imposed on consumers who don’t meet their payment obligations. Still, it’s a good start.
Two provisions of the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (also known as the Credit CARD Act), which was signed into law on May 22, took effect on August 20. If you’ve received a letter from your credit card company informing you that they’re kindly providing you with a few more days to pay your bill, you can be assured it’s not out of a sense of largesse or generosity. Instead, it’s thanks to a provision in the Credit CARD Act that requires issuers to mail or deliver a statement at least 21 days before payment is due. The previous requirement was 14 days.
The other provision of the Credit CARD Act that went into effect on August 20 is that credit card companies have to give you a 45-day written notice before they raise interest rates or change the terms of the account. If your credit card issuer notifies you of a rate increase, you can close the account to avoid a rate hike. However, you do have to pay off the balance under the existing terms within five years – and the credit card company can ratchet up the minimum payment by 100%.
The White House has a fact sheet about the various provisions of the Credit CARD Act, including those that will go into effect next year, and the Chicago Tribune has a nice roundup of the changes. Among the most helpful are those that prohibit banks from charging fees when you go over your credit limit, unless you authorize the credit issuer to approve charges that put you over the limit. In addition, consumers can’t be charged fees for electronic transfer or telephone payments. One of the most welcome changes is that, if the balance includes different interest rates, if you pay more than the minimum payment, that amount must be used to pay off the higher interest balance first.
It should be noted, however, that not everyone is thrilled about the Credit CARD Act. Chuck Jaffe, over at MarketWatch points out a number of problems with the law, and has some sound advice for consumers who want to make sure they have the credit necessary to meet unexpected emergencies.
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