Credit Card Stack

Early this month the Federal Reserve made public a proposal that would essentially take care of 3 large problems for consumers and create a “fairness” as Ben Bernanke said in the credit card industry.

The Federal Reserve outlined a need to limit interest-rate hikes, eliminate specific fees and take out shady billing practices that are deemed abusive - also giving consumers a 21 day grace period before payments are considered late.

Though some industry-insiders say that this bill will not do enough to regulate the way the credit card industry works, it’s a start. Still others in the industry claim this will actually do more harm than good as it forces credit card issuers (banks) to pass on the losses to existing customers and/or decrease the number of new customers it can take on and the offers it can present.

Essentially the new proposal will not allow banks to increase rates on outstanding balances, instead, limiting them only to increasing interest rates on existing borrowers future purchases. Banks would also be required to allocate payments to both high and low interest balances equally, instead of the current method that makes it very difficult for people to pay off debt when their low-interest debt has the priority for first payment and their high-interest debt has no payment applied.

The new credit card proposal is widely expected to be in effect by the end of 2008 - and yes, you can expect the credit card issuers to fight the proposal. No word yet on when/if the credit card issuers will start scaling back offers.

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