Credit Industry And Banks Are Fighting Back In 2010

Since the new credit card laws of Feb

Since the new credit card laws of Feb. 22 2010 there have been some great breakthroughs for credit card customers. One of the good things that have changed is that the new law will bar banks from a host of practices that consumer activists have long blasted as unfair. This means that no more rate hikes based on, for example a late payment on a cell phone bill. No more increases on existing balances. Lastly, consumers will know how long it takes to pay off their balance when they make minimum payments. With every positive step, there bound to be negatives to any law. One of the major pitfalls of the new law is that it will not prevent interest rates from going up for the vast majority of customers. Even after Feb. 22, holders of variable-rate cards can expect to see increases.

Variable Interest Rates is based on the prime rate and meant to follow the rise and fall of that index. The problem for consumers is that the prime rate is at 3.25%, an historic low, which is almost an extinct rate to have these days. It will almost certainly go up. And so will credit card rates, which currently average of 14.9%. Even though this seems quite high, there is a lot of room for growth and prices will go up.

While most credit card holders already have variable-rate cards, here is one area that the credit card industry is fighting back against a loop hole that has been found in the new laws. Banks have been busy these past few months making sure nearly all customers have those kinds of cards. With having the variable rate credit option, banks have this window to adjust credit rates as they see fit. In addition, some banks are setting a floor on certain accounts to prevent rates from sinking below a minimum level.

Indeed this new law does impact some of the less than desirable practices that the credit industry and banks have been doing to their customers, but like any law there are loop holes, and it's a sure shoe in that the credit industry will make use of these holes.

Along with switching customers into variable-rate credit cards, some banks are setting foundations to prevent rates from sinking below a certain level. This is one way to ensure that banks and credit cards will make their profits by keeping the interest Rates High. One could expect to have a minimum interest rate of at least 13% as a starting rate. The industry considers these minimum interest rates a way of accounting for the inherent risk in credit card lending. In other words, even though a customer may have excellent credentials, they are pooled with those who do not quite make the favorable credentials. In retrospect, this defines one of the loop holes that banks and the credit industry has found, because it undermines the law's intention to tie rates to the prime rate. True variable rates should flow up and down as the market does.

This will bring us to this burning credit card question that is floating in many people's minds is: When will I be debt free? The simple answer is: Probably never. As long as people keep on spending more than what they make and relying heavily on credit cards making their debt out of control, you can bet that this will never end. Indeed this new law does impact some of the less than desirable practices that the credit industry and banks have been doing to their customers, but like any law there are loop holes, and it's a sure shoe in that the credit industry will make use of these holes.

The best solution is to control one's debt and spending. It sound preachy, but owning a credit card is a privilege, and not a right. Even though there are many pluses with the new credit card law, you can make certain that the credit card industry and banks will win the fight from 2010 and beyond.

by: Teeny solomon

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