Like pretty much every American (excluding of course the .0001% who are actually Wall Street executives), I am angry at the banking industry. That’s why I was happy to read about the new changes that will affect the credit card industry as a result of the CARD Act, which will make it tougher for banks to get rich off the banks of unsuspecting consumers.
One way that banks currently collect fees is by charging exoirbanant fees for overdrafts. As a result of the new law, consumers will be prohibited from over-drafting on their accounts unless they “opt in.” I am sure that anyone who has had to balance a paycheck has been “dinged” by overdraft fees- one slip-up and you are paying between $20-35.00, which can easily lead to multiple overdrafts if you are not careful.
Another provision states that credit card companies will not be allowed to change your credit card interest rates as easily. The introductory rates might be higher initially, but without the flexibility to change rates as easily, you will usually know beforehand what you are getting yourself into.
The law also includes new limits on student credit cards, which will mean lower credit limits and higher interest rates. While the higher interest rates are not appealing, the lower credit limits are: getting into credit card debt is a common occurrence for university students, which is not surprising given the fact that some credit card companies currently give $20,000.00 credit limits to college students.
In much the same way, the law targets credit card companies who try to capture those with bad credit or the sub-prime market. After the law takes into effect, it will be more difficult for them to get credit. When they do, they will pay higher interest rates, but not the higher upfront fees, which are also known as “fee harvesting”.
The CARD Act protections do not extend to businesses, but Bank of America has announced that it will grant the same protections to small businesses.
The main criticisms of the Act are that it will be more difficult for people to obtain credit and that banks will possibly have the ability to charge higher interest rates. However, after the problems with the sub-prime market, I don’t think that tightening credit would necessarily be the worst thing.
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