The implementation of new credit card rules go into effect today.
Issuers cannot retroactively increase interest rates and must alert customers in advance to any changes in terms of their accounts.
President Obama calls the plan "a significant turning point for American consumers."
Austan Goolsbee, Staff Director and Chief Economist of the President's Economic Recovery Advisory Board walked us through the new regulation for credit card companies.
Goolsbee explained it’s two styles of rules, “one are prohibiting certain deceptive practices that few credit card issuers were engaged in that were very hard for consumers to understand in which they would get applied fees.” The second style is things related to “disclosure in transparency.”
This kind of “sneaky” behavior was going on throughout the industry. However, Goolsbee didn’t think it was “everyone” by any means, but it was sufficiently widespread.
Data suggests, credit card companies collected 20 some-odd billion penalty fees in the previous year, Goolsbee said “it was becoming more and more of a business model and less and less of bad activities. Some of the things, like applying interest rate increases to previous balances were pretty widespread. But a lot of the sneakiest of the things were not that widespread.”
But how do these new rules impact small businesses? Two ways. Goolsbee said, “a lot of small businesses use credit cards to finance their business especially in an environment where we have yet to enact the president's small business lending expansion fund. So the small businesses will directly benefit from the protections that the rules embody, kind of rebalancing the balance of power between you and your credit card company. On the other side, you have seen some of the banks themselves saying, well, this is going to force them to have to tighten credit.”
Here’s some excerpts from Maria's interview:
Bartiromo: Right now of course but because of the bill, though, will consumers face higher rates initially from credit card companies?
Goolsbee: I don't think so. I think you know there has been a diversity of practice over the last year. Some of the big financial institutions you saw announce, they would start abiding by the new credit card rules before they had to. So you saw them start engaging in these practices now rather than wait until now. Some others you saw change rates, raise some rates, drop some people. What we do know is starting today, if they're going to raise our rates, they got to give you warning. They've got to disclose that in plain language and you have every opportunity to switch guards. If they're going to administer certain kinds of fees, they’ll be prohibited. And they can't give you tease are rates that they yank them out from under you. They can't move the payment dates around. They can't have an initial, they can't have an annual fee on the initial credit balance.