By: Candi Sparks
Since the economic downturn of 2008, financial service industries have come to the forefront of legislative reform. Shortcomings in the financial sectors covering mortgages, securities and credit cards have been increasingly implicated at the heart of the meltdown. In turn, these industries have partially blamed delinquent consumer accounts for the sector’s meltdown. In an effort to prevent a further downfall, two pieces of new legislation, enacted in May 2009 have been implemented to stabilize financial institutions (the chicken) and consumers of financial products (the egg). In creating a stabilized economy, what should be saved first – the chicken, or the egg? That is the question.
The Fraud Enforcement and Recovery Act of 2009 created the Financial Crisis Inquiry Commission to “examine the causes, domestic and global, of the current financial and economic crisis in the United States.” The Commission is called upon to examine the causes of major financial institutions which failed, or were likely to have failed, had they not received exceptional government assistance. Is it not interesting that the first word of the Act is “fraud.” On August 30, 2010 the Financial Crises Inquiry Commission announced the details and witnesses for a public hearing to be held September 1st and 2nd from key players in the financial markets, including Federal Reserve Chairman Bernard Bernanke. The Commission will present a formal report to Congress and the President by December 15, 2010.
A second legislative reform in the financial sector, the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (the Credit Card Act) was fully implemented as of August 22, 2010. The Act provided reforms in credit card lending practices aimed to protect consumers by changing the structure of penalties and fees that may be charged to accounts, and to provide improved disclosures by the lender to consumers.
The Act generally prohibits an increase in interest rates within the first year an account is open and mandates a forty-five day notice with an “opt-out” clause when an interest rate is due for an increase. Further, consent is required before charging over limit transactions to an existing account. There are high fees limits for subprime credit cards and new criteria for opening accounts for consumers less than twenty-one years of age has been implemented. A full listing of the new credit card lending practices is available at the FederalReserve.gov.
Where as the Fraud Act is investigative and has a somewhat accusatory title by nature, The Credit Card Act seemingly distributes the responsibility of keeping accounts in good standing to the both the lender and borrower.
Despite the reforms, credit customers must still read the fine print on their contracts. No one is going to lend you money for free. The reforms prohibit an interest rate hike in the first year, but not after that. In contrast, cardholders of variable interest rate products will experience the ups and downs of their product regardless of the time period. The reform requires disclosure by the issuer, but the consumer must be prepared with the right questions. Credit cards are products, shop around and do your research. Ask about the “opt-in” charges for over limit transactions. What rate will the issuer charge for over limit purchases? A wholesome understanding of these financial products promises the best outcomes, in terms of your money.
It is painfully obvious that the economy is a delicate ecosystem. Hopefully an improvement in any area of the system will improve its overall health and our infrastructure will not have to chose between them.
Candi Sparks is the author of the “Can I Have Some Money?” books series.
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