New Government Rules to Relieve Hard Hit Consumers

Measure Aimed at Curbing Unexpected Rate Increases

By Stephen Mazeika 

Many cash-strapped consumers have been blindsided by sudden rate hikes in 2008, and needless to say it has left some more than just bit angry. Unforeseen rising rates have added a lot of financial burden in a tough economy which has left many asking questions of credit card companies; many which have gone unanswered. Luckily, the government has finally stepped in.

The Federal Office of Thrift Supervision and the National Credit Union Administration have recently enacted a limitation restriction as to when credit card companies are permitted to raise their rates. Proposed as a measure to help suffering American credit card holders, this limitation will allow credit institutions to increase their rates only when a customer is more than 30 days in payment delinquency.

In addition, this rule also states that credit institutions must honor promotional interest rates with a specified expiration date, or if the rate is tied to a specific market index such as the London Interbank Offered Rate for example.

These measures should help give consumers some needed protection in these increasingly gloomy financial times.

"I think that it would definitely help consumers get out from under their large amounts of debt," said Melissa Wareham, a card holder who recently found herself a victim of these sudden rate spikes. She and her husband were steadily paying off graduate school debt, and were always on time with their monthlies and usually paid in full. Suddenly they found that their rates had unexpectedly spiked, and their bill that month was hundreds of dollars higher than usual.

Some Express Caution about Unforeseen Consequences

Not all experts agree that this new rule is the answer. Although it does provide consumers with some more stability with their rates and minimizes the chances of unforeseen fee increases, many feel that this will only accentuate some of the problems that our nation is already facing.

Scott Talbott of the Financial Services Roundtable, a trade group that represents many of the nation’s largest credit institutions, says that some nasty repercussions may result. One could be that fewer people will be able to secure the credit that they need as institutions will be less willing to extend them credit lines. This, he says, will result in an inability of companies to assess a risk-based price structure which attaches different rates to different consumers depending on criteria such as credit score and payment history.

"If you limit banks' ability to charge the rate commensurate with risk profile of the borrower, then that borrower may not get the credit," Talbott said.

Some analysts such as Detwiler believe that many of these rate hikes have to do with card companies’ own cost increases that they are then in turn passing on to unsuspecting consumers, whereas others like Talbott disagree. Although he didn’t have exact figures, he did mention in general terms that only about 10% of the country’s 20 million card holders have seen rate increases this year, and that many of these cost hikes are only aimed at customers with poor payment histories and credit scores. He says that this flexibility to assess different rates is a necessary measure for companies to survive the present economic crunch where higher bank lending fees and customer default rates are all too common.