On August 20, the new credit card law which was created to protect consumers against increasing interest rates and other expenses takes effect. The question many consumers ask is whether the new law actually helps them or proves to be more hurtful. Of course, the answer varies greatly when you ask the people who are most affected by it: credit card providers and credit card holders.
Most, if not all credit card companies say that the new law actually impairs consumers while the consumer advocates say that the issue of the new law creating more harm than good is a big lie, possibly propagated by the credit companies themselves.
In truth, the answer could be found in the gray area between the "yes" and the "of course not". In the months before the credit card reforms take over, banking industry lobbyists inform the public of the negative aftereffects of restricting credit card providers with the ability to increase interest rates based on the borrower's creditworthiness.
Bankers listed the following consequences:
1. Rate hikes for everyone. Since the credit card companies will no longer have the freedom to increase interest whenever they want to, they take advantage of the limited time to wage rate hikes to all their clients. Even those who religiously pay their bills on time would have to suffer paying for the additional costs of different rates increase.
2. Inability to access credit. Many credit card companies would also have to resort to other means of profit when they are barred from increasing interests. These involve being stricter in choosing borrowers. Those with bad credit would have to face very low credit limits or no credit limits at all.
3. Apart from this, credit card companies would have no choice but to collect annual fees from all account holders.
4. People are also expected to pay for variable interest rates instead of fixed interest rates on all kinds of accounts.
5. Everything comes with a price. Credit providers would also have to cherry pick those who will be given low teaser rates and zero percent balance transfer offers.
6. Down with rewards. If credit holders today enjoy cash-bank incentives, exotic rewards and airline miles, then they would just have to be content with no additional expenses when they pay their bills on time. This is because providers are expected to reduce such rewards.
7. No more gracing period. Providers will not let you borrow money without an interest. If they can not increase the interest rates, they would resort to implementing the interest rate from the moment you purchase something until the billing cycle ends.
8. Surprise fees. The credit card companies could very well come up with other kinds of fees to charge their clients with as long as they are not specifically mentioned in the law.
Despite these seemingly horrible consequences, the new law limits the time credit card providers can increase their interest rates, requires that the fees asked from consumers are reasonable, and mandates providers to give their clients more time to pay their monthly bills. The first provision that gives the consumers the right to opt out of changes in their cards already took effect on August 20.