A 2009 Act of credit cards was put in place in order to comprehend a legislation that was consumer-friendly, which beset the practice of unfair credit cards. Before any action took place due to the Card Act, credit card corporations were able to charge you a large number of fees and spread your payments to a lower interest balance, which would include all sorts of hidden fees. These would apply to you if you were to go over your credit limit.
Credit card companies could also evaluate a huge late fee on a payment and claim it wasn’t processed by the date it was due, no matter how early you had mailed it. Thanks to the act, such practices have had an end put to them and currently fees are not allowed to exceed 25% of the original credit limit.
However, a big thanks to the act, but there are still some limitations that can harm you more than help you. These card act loopholes have caused much fuss and it is important you are exactly aware of what is and has been happening.
The Unplanned Concerns of the Card Act
Specific studies were carried out and showed the Card Act was positive; however, that doesn’t really clear the card act loopholes. A study by the Responsible Lending Center has claimed that the Card Act was successful. It showed that the change amongst the advertised interest rate and the actual paid rate has tightened. However, even after this finding, we don’t really get a clear picture of the card act loopholes. The only thing that was analyzed was the interest and not the charges. When it comes to the card act loopholes, then it is the fees we are more concerned for as that’s what has increased.
Taking extra and huge amount income from fees is something that many credit card companies have got used to. It has happened so much and still carries on doing so. This is one of the card act loopholes, which needs to stop. Statistics from MoneyTalkNews have shown, since the Act took place; balance transmission fees have increased by 33%, annual fees have increased a total of $9 and cash loan fees have also increased by 33%.
Another consequence caused by card act loopholes is the fact that credit has been made tighter. When talking about the long run, these fresh rules may change the allowance of sub-prime credit cards. It will do this by making things harder for people who have low and/or poor credit, as they may be deprived to buying credit cards altogether.
Irrespective of the Card Act Banks Still Accomplish Risk
Generally, banks are risk-averse as they can easily balance risks by charging a higher interest rate. In times when it is not allowed for them to charge a higher rate to ‘risky’ borrowers, they then stop the availability of credit to them.
In a letter from shareholder JP Morgan Chase, who is the creditor’s CEO said they have put an end to giving cards to as much as 15% of consumers who once upon a time would have been given a card in the past. This was due to the fact that the bank has now started seeing them as far more ‘risky’ within the guidelines of the Card Act.
Universal default practices are another way that banks always manage risks through. This is under a credit card provider who would promote a customer’s charges if they were to go on a different loan.
This is a consumer-unpromising practice, but isn’t so much for the bank as for them it is of big help in serving as a risk controlling tool. The Card Act prohibits worldwide default practices, which means the providers of the card aren’t allowed to answer consumers who are suffering from falling credit. This is also one of the card act loopholes, as card providers are making credit harder to have, which as a result makes it tougher for all.
Even though interest rates and fees that were perceived as biased have finished, the end result leads to a decrease in the people who are given credit.
Defective but Improving Card Act
The 2009 Card Act does have positive attributes to it, which are also consumer-friendly. However, the final result has triggered unexpected situations for some consumers. Credit is now harder to get for people who are on a lower income or for those who are experiencing slight credit encounters. Card holders that always pay on time are also facing raised fees.
Even though the intention of the Act was good, it still doesn’t fulfil some of its aims. Some changes due to the Card Act have actually turned out to harm consumers instead of help them. More action needs to be taken and a further rule needs to be implemented in order to improve the Act.
Recently, improvements have been made, which have successfully put an end to some of the card act loopholes.