WASHINGTON: Tough new rules on the U.S. credit card industry went into effect Monday.
The rules are largely aimed at preventing banks from employing tactics designed to plunge card users into a never-ending cycle of debt.
The lenders serving risky borrowers say high fees and interest rates are necessary because their customers are more likely to default on loans. Restrictions on what they charge could put them out of business and leave the neediest with no options at all, they say.
Meanwhile, advocacy groups say the rising public anger toward the credit card industry show the need for greater consumer protections.
Under the new regulations, interest rates cannot be raised in the first year after an account is opened unless an introductory rate has come to an end. After that, cardholders must be notified 45 days in advance of any rate change.
For existing balances, rates can't be raised unless the account is at least 60 days past due. If payments are made on time for six consecutive months, the original rate must be restored.
Disclosure rules have been updated so that cardholders will see how many months it will take to pay off a balance if only minimum payments are made. Statements will also indicate how much needs to be paid each month to pay off a balance within three years.
Service fees, formerly largely uncapped, will be capped at 25 per cent of the credit limit during the first year of use.
The new law also requires grace periods to stay consistent from month to month. Statements must be sent out 21 days before the payment due date, and finance charges and fees cannot be applied before that period is up.
The rules are largely aimed at preventing banks from employing tactics designed to plunge card users into a never-ending cycle of debt.
The lenders serving risky borrowers say high fees and interest rates are necessary because their customers are more likely to default on loans. Restrictions on what they charge could put them out of business and leave the neediest with no options at all, they say.
Meanwhile, advocacy groups say the rising public anger toward the credit card industry show the need for greater consumer protections.
Under the new regulations, interest rates cannot be raised in the first year after an account is opened unless an introductory rate has come to an end. After that, cardholders must be notified 45 days in advance of any rate change.
For existing balances, rates can't be raised unless the account is at least 60 days past due. If payments are made on time for six consecutive months, the original rate must be restored.
Disclosure rules have been updated so that cardholders will see how many months it will take to pay off a balance if only minimum payments are made. Statements will also indicate how much needs to be paid each month to pay off a balance within three years.
Service fees, formerly largely uncapped, will be capped at 25 per cent of the credit limit during the first year of use.
The new law also requires grace periods to stay consistent from month to month. Statements must be sent out 21 days before the payment due date, and finance charges and fees cannot be applied before that period is up.
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