The New credit Card Act commenced on 22^nd February, 2010 and brought with it a series of issues that will be affecting both the consumers and credit card companies. The whole process kick started on May, 2009, when Barack Obama signed a new legislation: Credit Card Accountability, Responsibility and Disclosure Act of 2009 (Credit CARD Act). The perspective was to compel the credit card firms open up more regarding their fees, interest rates and other issues to ensure a better service to the consumers.

Before diving into any controversy, it is important to know what the provisions of Card Act are. Here are snippets of the most important provisions of the act:

• This bill has come up with certain restrictions on credit card companies regarding charging fees and high interest rates. So it has been passed that all credit card firms will have to give a prior notice of at least 45 days to cardholders in order to make any changes in interest rates.
• Credit card companies cannot hike up the rates of interest in a retroactive manner on the existing balance of the cardholder. This can be done only if the cardholder has not made a payment for 60 days or more. However, if there is payments are made on time, original rates have to be restored by the credit card company.
• Prior to the Credit Card act, users had to pay balances with lower rates of interest. But now as the act puts it, balances with higher rates of interest need to be paid first.
• Credit card companies cannot issue or market cards to people who are below 21 years of age.
• As the new law commences, card issuers will be given a reasonable amount of time for paying monthly bills. It is also put that statements would be mailed out 21 days prior to the payment overdue.
• It has been proposed to limit the fees charged for going over-limit.
• The new credit card is like a sigh of relief who had to pay account-opening fees for subprime credit cards.
• Consumers can also set a credit limit and that can be less than the limit offered by the credit card issuers. Card issuers must get permission from card users for processing over-limit transactions.
• Card users will be now free from extra charges to pay bills until it becomes an expedited payment.

These were a brief overview of the new credit card act that is trying to create a consumer friendly environment. But are there any unintended consequences? Is it really going to slash the credit card companies? Grapevine has it that, there might be a reduction in airline miles, bonus offers and cash rewards. A lot of controversies are also arising around the new annual fees that never existed before the new act was passed. It is also said that people might face difficulty in obtaining a credit card irrespective of their good credit score. Washington Times had anticipated something a few days back when Erik Benrud, the finance professor at Drexel University in Philadelphia said, “…restricting the price, banks can charge customers,….they are going to start cutting back their lending.” To this, Gail Hillebrand, financial services campaign manager at Consumers Union exclaimed, “You mean, if they can’t rip us off they are going to give us less credit?”

So one can well imagine what kind of controversies is arising and now that the act is in force, it is important to understand where it is steering. The main essence of the act is to offer relief to consumers so that they do not have to take credit card debt consolidation as the only option. If you look at the trend, people often consolidate debts to deal with a bad credit history and this is very much true about credit card debts. The President described the new rules as “Credit card companies provide a valuable service; we don’t begrudge them turning a profit. We just want to make sure that they do so while upholding basic standards of fairness, transparency, and accountability. Just as we demand credit card users to act responsibly, we demand that credit card companies act responsibly, too. And that’s not too much to ask.” The new bill is a great initiative to help young people and students to stop unfair fee traps, increase accountability and protect their financial health.

It had been stated earlier in 2009 that the Americans haven been facing a huge crisis in order to pay more given to long credit card contracts and unfair practices. So President Obama said, “With this new law, consumers will have the strong and reliable protections they deserve. We will continue to press for reform that is built on transparency, accountability, and mutual responsibility – values fundamental to the new foundation we seek to build for our economy.” He kept on emphasizing on various measures for protecting consumers throughout the campaign in the Senate. This was contributed and seconded by leadership of Chairman Frank and Representatives Maloney and many other eminent Senate personalities. This bill was indeed a breakthrough by the Federal Reserve for fighting against unfair transactions and dealing with disclosures to allow consumers a better financial environment.

The Better Business Bureau also ran a survey predicting that in 2010, U.S will have around 181 million card holders. So the Better Business Bureau advises people to read through the provisions of the act and get accustomed to the fine print of the Credit Card Act of 2009. As Paula Flemmin, the spokesman of BBB said, “consumers need time to understand the fine print of their credit card agreements and the fees that can chisel away at the family finances. The new Card Act provides more consumer protections, cardholders still need to keep an eye on changes to their accounts and respond quickly if they aren’t satisfied.”

This was a guest post by Dorothy Anderson. Dorothy Anderson is a finance blogger at OVLG. She offers advice to people on debt consolidation.

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