Bank Policies Affecting You?

The Credit Card Act of 2009 was implemented last may to deal with the growing deceptive practices in the Credit Card industry. The changes are scheduled to for the February 2010, one might think during this time frame the banks are adjusting their policies but that is certainly not the case, reports confirm that they are simply adjusting their policies with the struggling economy.

The report which is titled Still Waiting: Unfair or deceptive Credit Card Practices Continue as Americans waits for new reforms to take effect. Amazingly 100% of the banks reviewed would fail to meet the requirements of the new Credit Card Act; in fact some of the practices which brought about the credit card legislation had become even more common. For instance in December 2008 92% of the banks reviewed raised interest rates on outstanding balances by changing their account agreements unilaterally, As of July 99.7 of the banks will raise their rates. The report also found that 95% of the banks apply payments in a manner that the Federal Reserve considers likely to cause “substantial monetary injury.” This means that the credit card issuer chooses how to apply your monthly payments, that’s possible because many accounts have multiple types of balances each with its own interest rate.
For instance the interest rate you may be charged for purchases could be 15%, while the interest rate for any cash advance could be 25%. Your credit card company decides where to apply the bulk of the payment and right now many apply payments to the portion of your balance with the lowest interest rate first.

Let us assume you had a total credit card balance of $1000.00, $600 of which were for purchases and the remaining $400 for cash advances; you then made a payment of $700, the bank would choose to apply the payment to the portion of the balance related to the purchases part with the lowest interest rate. The balance with the higher interest rate in this case the cash advance, would receive a smaller payment. The Credit Card Act abolishes this practice but until it takes effects banks continue to squeeze every dollar out of their accounts by applying payments this way. That’s why congress was considering moving the effective date of the act to December 1st.

From the bank’s perspective making the most out of the credit card side of the business before that happens makes make perfect sense, after all their real estate lending business has been hurting and it slow to turn around. At the same time the rising number of defaults a natural consequence of increasing unemployment among the banks clients means that banks have good reason to be anxious about the changes they will have to accommodate when the law takes effect. And there are still other changes you should be aware of.

Creditors are also making a departure from offering consumers fix interest rates, most contracts allow the lender to change the interest rate they offer to you for any reason; because of this the Credit Card Act requires that rates advertised as fixed must remain unchanged for a stated period of time. To avoid this some creditors are opting to convert their fixed rates to partially viable rates with fixed minimums. Partially viable rates are tied to an index like the prime rate and the minimum rate requirement would prevent card holders from enduring a low rate if the index fell below a predetermined limit. In December of 2008 10% of banks attach partially viable rates to their credit cards, however in July of 2009 38% of the banks studied now offer partially viable rates.