The credit card industry proved incapable of regulating itself and complaints about unfair practices soared as high as charges and interest rates. Credit card providers are obviously in business to make a profit but some of the tactics used were more akin to pay day loan lenders, or even loan sharks in some instances. However their habit of irresponsible lending led to many losses and when government intervened to impose laws to regulate the industry some have taken it on board as an opportunity to be more responsible.
One of the prime examples of shoddy bank practices which necessitated the need for government intervention was the way in which First Premier Bank dealt with their credit card customers. As a subprime lender bearing more resemblance to a used car dealership than a bank it took advantage of financially uneducated customers. It imposed fees which ate up almost their entire credit limit before the plastic had even been received.
This was addressed in one of the changes which the Credit Card Accountability, Responsibility and Disclosure Act of 2009 brought in. Lenders are no longer allowed to impose charges which are more than 25% of a customers credit card limit. Preying on irresponsible borrowers is still allowable of course but not quite so much profit will be made from them as previously.
A key change which the Act introduced was that credit card providers must give clear information relating to the terms and conditions of their product. This has been complied with but is meaningless when a high proportion of borrowers never bother to read this information. The headline advertisements of credit cards are often misleading but the consumer has only themselves to blame if they fail to read the agreement which they must sign. The conditions are much more transparent than previously though rewards offers bear some scrutinising.
The Act has done nothing to address the positive and adverse order of payments which is a key feature of the UK attempts to regulate their card industry. American card holders will still have their payments allocated to the lowest interest charging portion or their debt first.
Lenders sought to take advantage by imposing new charges as they received regulation, with some banks introducing inactivity fees. This has now been addressed but illustrates the imaginative way in which banks will attempt to recoup the losses they will experience from uniformity in their payment due dates, which was a handy source of charges previously. Attempts to introduce annual fees on cards which did not previously carry them have been cautious in case customers vote against them by changing providers.
It is clear that the credit card industry needed guidelines imposed as they were incapable of doing so themselves, yet guidelines mean little if consumers continue to lack the knowledge to deal with credit responsibly. The notion of a financial literacy test before consumers are given credit has been raised in the UK and would be an excellent measure to be introduced in America too. Whilst some consumers remain naïve there will always be a percentage who blames the product rather than their own use of it.
There is further information here regarding the actual changes introduced in February 2010.http://www.helium.com/items/1749756-credit-card-reforms-2222010 and then the final changes introduced in August 2010: http://www.helium.com/items/1920691-latest-changes-under-the-credit-reform-act