New Rules for Credit Card Companies

The FED and the Office of Thrift Supervision (OTS) announced new rules for credit card issuers in December 2008. The rules do not go into effect until July, 2010, which feels like a pretty long ways away.

The key changes that the new legislation will require are:

Elimination of Double Cycle Billing – Double Cycle Billing allows credit card companies to charge interest on both the previous and the current month's balance. If you are a person that occasionally has a balance, but often does not, then you will pay much more in interest charges than you should. Cardholders with revolving balances aren't affected as much, unless their balance fluctuates dramatically from one month to the next.

45-Day Mandatory Notification of Interest Rate Increases – Lenders will no longer be able to increase the interest rate on existing balances except in special situations, like delinquent or default accounts. After the new law passes, any existing balance will have to be billed at the original interest rate. This in itself is a major achievement for consumers and will significantly reduce the amount of interest unfairly paid to creditors.

Fair Payment allocation – Lenders will have to apply any amount paid beyond the minimum balance due to the portion of the balance owed with the highest interest rate. Currently, most lenders apply these payments to the amount owed with the lowest interest rate. Again, this will reduce the total interest consumers pay credit card companies.

Elimination of Universal Default – Currently, credit card companies can increase a consumer's interest rate if she or he defaults or misses a payment on another bill. One of my fellow colleagues had a Bank of America credit card go from 6% to 30% because they were late on an unrelated bill. In my opinion, this has been one of the credit card industry's most unscrupulous tactics and I am overjoyed that legislation will stop this insanity.

The Right for Consumers to Institute Credit Limits - Consumers will be able to set a fixed credit limit, which they cannot exceed. This will prevent credit card companies from being able to charge over-limit fees.