Today, the Federal Reserve is expected to announce new credit card regulations that should offer greater consumer protection. Credit card companies have been known for their predatory practices that include:
- Universal default.
- Two-cycle billing.
- Interest rates changed on a whim, for no apparent reason. (Citi is a prime example of this.)
- Application of payment to lowest interest charges.
There are, of course, several other complaints that can apply. The bottom line is that all of these credit card practices exact a terrible penalty on people when they miss a payment, or don’t pay off an entire balance every month. Or (especially in the case of interest rates) punish people who are acting entirely responsibly.
Now, though, in the wake of mounting consumer debt and the financial crisis, the government is finally doing something about some of the worst practices. I am particularly happy that universal default will be gone. This is a practice that credit card companies use to increase your fees or interest rates when you are late with a payment to a different, unconnected creditor, or if your credit score goes down for any reason.
I also like that the Fed is going to require that credit card companies come up with some sort of a formula for applying interest rates that does not penalize those who have accounts in good standing.
Do you think increased regulation of credit cards is a good idea?
