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The Fed has drawn up a set of rules to police behavior by credit card issuers. On the surface, it all looks good. However, there may be some unintended consequences. Here are the proposed rules and my thoughts on the matter.

1. Placing unfair moment constraints on payments - While consumers may cheer that, I honestly think that is the most ridiculous thing I’ve come across. In the corporate world, whether a company misses a coupon payment on the bond, the bond trustee would immediately act on behalf of the bondholders. Lawsuits will be filed, and the company has to negotiate with creditors whether they want to avoid filing chapter 11. whether payment was missed due to extraordinary circumstances, the borrower may have to pay a fee to the creditors. Why should consumers be given leeway. The Feds are proposing that payments are not considered late unless we have been given 21 days to manufacture a payment. My experiences so far is that credit card companies will not report late payments to the credit bureaus unless you have been late by 60 days. Well, I guess consumers will benefit as we may not be charged any interest unless we are late by 21 days. I’m really not too certain whether that is a good notion.

Unfairly allocating payments among balances with different interest rates. - Presently, when you have transferred a balance on a 0% APR deal and you carry more balance on top of that, the payments that you manufacture above the minimum amount will be used to reduce your balance that is charged the 0% rate. That is how issuers form their money on 0% deals. whether you charge more expenses to the card, they will earn that higher interest and you cannot pay it off. Well, under the new Fed proposals, that practice will come to an end. An additional payments above the minimum payment will be used to pay the higher interest balance.

Sounds good? But credit card issuers will suffer. One unintended consequence may be that banks stop offering good 0% APR deals.

Unfairly raising annual percentage rates on outstanding balances. - Under the first proposal, issuers cannot raise your interest rates unless you are late by more than 20 days. that proposal will prohibit issuers from raising your rates just considering you miss your mortgage payments. that effectively bans the practice of universal default clause.

On surface that sounds great. However, credit card

issuers do have a valid point in that you are a more risky borrower whether you miss a payment on another debt obligation. In the corporate world, whether a corporation miss one couple on one bond, technically, the company has defaulted - not just on their bond, but on every creditor.

I think another unintended consequence is that credit card issuers will have higher issuing standards and APR will be higher than what it would be without that.

Placing too-high fees for exceeding the credit limit solely considering of a hold placed on the detail, usually by rental car companies or hotels. - that is faraway overdue and a wise proposal.

Unfairly computing balances with methods such as “two-cycle billing - I definitely second that proposal. Most humans do not understand APR or how to compute their monthly balance. Having 2-cycle methods only add to the confusion.

Unfairly adding protection deposits and fees for issuing credit or making credit available - The rules would ban fees that consumed a majority of a new card’s credit limit. Sounds familiar. Yes, sub prime cards! Subprime cards normally charge a one-time application or processing fee, a monthly maintenance fee and high APR. Most will only given you a credit limit of $300. By the day the fees are taken out, a new cardholder only has an initial limit of $100!

One is tempted to think that it is great for sub prime borrowers considering all sub prime credit cards charge these ridiculously fees. But having said that the reason they do that is considering regular issuers will not even issue cards to sub prime candidates.

Question is what happens whether they are forced not to charge these fees. Will these subprime issuers feel that they are compensated for lending to less than desirable candidates? I don’t know the reply to that but moment will tell. Another unintended consequences.

Making misleading offers of credit - Issuers have to state clear what you need achieve the APR or teaser deal that was advertised. that is a great thing considering whether prevents impulse purchases. whether only they would enforce that with cell phone companies or cable companies (with all their pay so little for 6 months but do not tell you what happens after the teaser deal is gone!).

I would certainly like to prepare out your thoughts on these changes.

Orginal post by Mr Credit Card