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Inland Empire Bankruptcy and Credit Attorneys on New Credit Card Law's Effects on Consumers

May 28, 2009

Congress passed a law this month adding new regulations limiting anti-consumer behavior by credit card companies. Our Chino debt settlement attorneys have written here a few times before about the rise over the past year of unfair practices like changing interest rates, lowering credit limits and other adverse actions against cardholders who have no record of payment problems. In response, Congress passed the CARD Act, a law limiting certain behaviors by credit card companies, and President Obama signed it May 22. Consumer groups are pleased by the law, but warn that it doesn't end every abusive practice -- and could encourage more abuse in the months before it becomes effective.

The Wall Street Journal's Washington Wire blog reported some of the details of the bill. Perhaps most important for cardholders, credit card companies can no longer apply an interest rate change to an existing balance, unless that balance is more than 60 days overdue. They must disclose changes in terms 45 days before the changes take effect, disclosures must be clearer and bills should be sent out at least 21 days before the due date. Any payment above the minimum must be applied to the highest outstanding balance. And they cannot charge fees for transactions over a credit limit unless the cardholder chooses that feature.

These are all good features. But consumer groups, and our own Orange debt settlement lawyers, wish it went farther. Most importantly, we wish the law had set a cap on interest rates for bank-issued cards, which can go as high as 30 to 40 percent. The banking industry had argued that this would threaten their industry, but interest rates on cards issued by credit unions have been capped at 15% for decades, with no ill effects. We also wish it had banned the practice of raising interest rates and lowering limits based on the cardholder's record with other lenders, or worse, based on a good cardholder's choice to shop at stores frequented by irresponsible cardholders.

We also wish Congress had mandated the new rules take effect s soon as possible, rather than giving credit card companies nine months to implement them. Already, it's clear that they're using those nine months to squeeze as much revenue as they can out of cardholders, raising interest rates dramatically and lowering credit limits on people with no history of late payments or overspending. These moves punish responsible borrowers in the short term, raising their expenses at a time when few Americans have the resources to deal with another expense. They also do long-term damage to cardholders' credit scores, which take a hit every time available credit goes down. These practices raise profits in the short term, but by driving cardholders into financial problems and possible bankruptcy, they could actually cost the card companies more in the end.

At Howard Law LLP, we represent clients who are in debt over their heads because of a combination of bad decisions, bad luck and unethical behavior by creditors. Our Los Angeles debt settlement lawyers negotiate with creditors to end harassing phone calls and settle your debt once and for all with a lump-sum payment. Frequently, creditors will accept less than you owe because they know it's more than they would stand to receive if they drive you into bankruptcy. Once your debt is settled, we can help you set your credit record straight and advise you on the tax and credit consequences of the transaction.

If you know you have more debt than you can handle and you're ready to take action, you should contact Howard Law today for a free, confidential consultation. You can contact us online or call us toll-free at 1-800-872-5925.