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Federal Reserve adds consumer protections to credit card rules

Guarding consumers from interest rate hikes, heavy late fees and other penalties are the focus of new credit card rules approved by the Federal Reserve on June 22. Since the 2009 credit card law was passed last May, credit card companies have tried to stay a step ahead of the law with creative new fees and penalties. The latest additions to the Fed’s credit card rules become effective Aug. 22. The provisions close some loopholes and complement rules in 2009 credit card law already in effect.

Resource for this article: New Federal Reserve credit card rules beef up consumer protection

New limits to credit card late fees

The latest additions to Federal Reserve credit card rules are the finishing touches of regulation enacted by the credit card law of 2009. A primary goal of credit card legislation was reducing penalty fees and Congress left it up to the Fed to say how. CNNMoney.com reports that consumers will most instantly notice the new penalty fee limit of $ 25. The rule does have exceptions. The credit card business can charge up to $ 35 (which they'll) for a lot more than one late payment in six months. Late fees will remain at $ 39 until the law kicks in on Aug. 22.

New limits on credit card penalty fees

Penalty fees for exceeding credit limits are limited with the new credit card rules. Forbes reports that the dollar amount of the penalty fee can no longer be more than the violation. For example, a credit card business can no longer charge a $ 39 fee when a customer exceeds his or her credit limit by $ 20. From now on $ 20 will be all they get. But the credit card company could still penalize the customer with a higher rate of interest on future purchases. There may also be no a lot more inactivity fees, a penalty imposed on cardholders who aren’t using their cards.

A reconsideration of interest rates

High credit card interest rate hikes imposed on customers given that Jan. 2009 in response to the credit crunch will be subject to review by credit card companies. The New York Times reports that credit card companies may have to lower interest rates if the reasons it raised them no longer apply following a re-evaluation.

More information about credit card rules

In a press release announcing the new credit card rules, the Fed said consumers can learn a lot more about changes to their credit card accounts by accessing a new online publication "What You Have to Know: New Credit Card Rules Effective Aug. 22”.

Citations

money.cnn.com

forbes.com

bucks.blogs.nytimes.com

www.federalreserve.gov

Pay day laws – specifically capping rates – is nothing new to American political theater. However, not all countries that allow private money lenders to serve consumers in need of easy cash loans are so eager to institute a rate cap that could stifle the natural price controls present within a free market economy. According to UK newspaper The Guardian, the Office of Fair Trading (OFT) within the United Kingdom has ruled that a payday loans rate cap is not needed and would ultimately harm competition – and hence prices.

Article Resource: UK Office of Fair Trading says no to pay day loans rate cap

Pay day loan system imperfect, but working 'reasonably well'

Easy payday loans and other styles of pay day loans credit are beneficial if credit-constrained persons can easily access them. The OFT recognizes that market competition has helped regulate payday loans no fax prices. The level of competition between easy loan outlets may not be as effective as it could be, but the OFT is confident in their assessment that payday lending markets work "reasonably well". This manner of thinking has not been proven popular with the Archbishop of Canterbury, Financial Inclusion Centre and charity group Debt On Our Doorstep, but the OFT has trudged on. Within the interests of balance, the OFT did suggest the UK payday loan industry would most certainly benefit from a uniform code of conduct to bring violating stragglers into line.

OFT move sits well with Finance and Lending Association

Fiona Hoyle, Head of Consumer Finance for the Finance and Lending Association, told The Guardian that a payday loans no fax rate cap "would have adverse unintended consequences for consumers, including for the cost and availability of credit". Learning from the U.S. study from Dartmouth University that showed the follow of payday loan rate caps (also as another recent U.S. study that showed that payday lending companies do not reap unreasonable profit, Hoyle told The Guardian that she hopes parliament will learn from the OFT's example.

A severe crack down solves nothing

Marie Burton, financial services specialist at the consumer group Consumer Focus – which operates independently from the payday loan lenders industry – told The Guardian that the OFT has exposed just how hard it is to both promote competition and help drive down consumer cost. It may be the ideal, but the UK payday loan industry still has some road to travel before arriving at that goal. Pulling banks and credit unions into competition by encouraging them to offer low-cost, low-hassle payday loan products would be most ideal for the free market, although banks and credit unions have failed at this before, considering America's example.

A lot more information on this topic

http://www.guardian.co.uk/money/2010/jun/15/doorstep-lenders-interest-ra...

The recent Greek riots have rocked the city of Athens, leaving 3 dead within the clash between police and protesters. The Greek riots are believed to be caused by recent economic measures meant by the Greek government to curb spending and gain a better grip on the country's spending ahead of a pending bailout. Greece will need to get their house in order before any quick cash from a bailout can be made available.

Greek riots touched off by austerity measures

The Greek riots came after a proposed spending bill from Prime Minister Papandreoun which would drastically cut the nation's spending. The spending budget deficits and financial turmoil have led to the downgrade of the credit rating of Greece. The budget measures would conserve 30 billion Euros over the next few years. The budget cuts would amount to about 11 percent of Greek GDP, according to MarketWatch.

What's getting cut?

About 75 percent of total public spending in Greece goes to pensions and public sector wages. More people are employed within the public sector in Greece than by most other European governments. Wages and pensions would be frozen or cut, and additional taxes would be placed on consumer goods.

Bailouts

In order to keep Greece from becoming insolvent as a nation, a 110 billion Euro Greece bailout is being put together by various European Union nations and the International Monetary Fund. One of the biggest contributors is Germany, and Angela Merkel, the Chancellor, has put up over 22 billion Euro. She has been hesitant, and believes an instant bailout would wasted if reform is not in place first. The bailout is unpopular with the German public, though the President of the Bundesbank (central bank of Germany, comparable to the Federal Reserve) Axel Weber has supported the bailout, as not doing so could contaminate other European markets.

Greek riots preceded by strikes

The Wall Street Journal reports the proposed spending budget revisions are likely to pass, as the Prime Minister's party (Socialist) holds a majority, and that after the cuts were announced, a general strike broke out nationwide. No ferries ran, schools closed, shopkeepers locked their doors, lawyers and doctors all took to the streets in protest. Hospitals were barely able to operate, and no flights went in or out of the country before the Greek riots began. A lot more protests will likely take place.

Article resources

MarketWatch

http://www.marketwatch.com/story/greeks-go-on-strike-against-austerity-m...

Wall Street Journal

http://online.wsj.com/article/SB1000142405274870396110457522547257751341...