After President Barack Obama signed a landmark credit card reform bill into law in May, credit card issuers had almost a year to implement the legislation's major provisions.
The first phase of the law took effect in August and, among other things, required card issuers to give you 45 days' notice of any significant changes in card terms, such as an increase in your interest rate.
The full force of the new law is scheduled to kick in Feb. 22, but the protections could take effect Dec. 1 if a new bill passes.
U.S. Reps. Carolyn Maloney, D-N.Y., and Barney Frank, D-Mass., have proposed legislation that would speed up the new regulations by almost three months. The House Financial Services Committee, where Frank is the chairman, has scheduled a hearing on the bill for next Thursday.
As far as I'm concerned, the sooner the new rules take effect, the better. Card issuers have used this time to slash credit limits, raise interest rates and bring back annual fees.
"The motivation for Maloney and Frank pushing up the implementation of the [law ] is apparently to outflank issuers who have begun raising rates on people and their existing balances to beat the February 2010 date," agreed Ben Woolsey, spokesman for CreditCards.com.
According to a study by the Pew Safe Credit Cards Project, the median lowest advertised interest rate among 400 credit cards it studied in July rose 20 percent since December.
"It's clear that credit card companies are taking advantage of this period between the signing of my bill and the current effective date," Maloney said. "The breadth and depth of the rate hikes happening now point to the need for faster consumer protections."
Many of my readers who use credit responsibly and always repay on time are understandably angered by the card companies' moves. They need protection now.
Restrictions scheduled to take effect in February include:
• Prohibiting interest rate increases on existing balances except in limited circumstances, such as when a promotional rate ends, the rate is variable or you make a late payment.
• Eliminating "universal default," or the practice of raising interest rates on customers based on their payment records with other credit issuers.
• Requiring credit card companies to apply a consumer's card payment to the highest-interest balances first. Issuers currently apply all amounts over the minimum payment to the lowest-interest balances first, which extends the time it takes to pay off higher interest rate balances.
Bankers say advancing the implementation date could end up hurting consumers because card issuers need the time to overhaul their computer systems. Without the extra time, they say, mistakes and confusion could ensue.
"It would be extremely difficult, if not impossible, for them to meet the new deadline contemplated by this bill," said Kenneth J. Clayton, senior vice president of card policy at the American Bankers Association. "Behind every credit card account is a complex network of data systems, risk management systems, pricing mechanisms and funding sources."
To not be given the time to make the correct adjustments "could lead to mistakes in account statements and create confusion and uncertainty for millions of American consumers, not to mention posing significant legal penalties for banks."
This is a stall tactic.
"If the roles were reversed and they had the opportunity to take an increase in APR or changes that would lead to more revenue, I bet they could make those changes faster," said Bill Hardekopf, chief executive of LowCards.com.
Let's not drag this out. Congress should speed up the implementation date of the law so consumers can be fully protected and not be jacked around by last-minute maneuvers by card issuers.
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