Four ways consumers could take a hit from new card rules

Credit crunching

Courtesy : Market watch

Washington is expected to wrap up work this week on legislation that would curb credit-card practices decried by some as predatory and anticonsumer. But the credit-card industry is warning that new rules could backfire on consumers in a number of ways.

Given the recession and already weak demand, repeated warnings from industry representatives about overly restrictive rules cutting consumers' access to credit deserve particular attention.

"The risk of the legislation is that at the very time our economy is suffering from a lack of available credit, we are penalizing people who are at the front line of making credit available," said Lewis Wiener, partner and chair of the financial services litigation team at law firm Sutherland Asbill & Brennan LLP.

However, some are not convinced that limitations to credit would be severe.

"We hear a lot from issuers that credit will dry up. I don't see that happening. Credit card issuing is part of the market. Despite what is happening in this particular period with the downturn, even if [issuers] are not using some practices, credit cards will still be profitable," said Joshua Frank, senior researcher with the Center for Responsible Lending, a Durham, N.C.-based research and policy organization.

The future is somewhat murky given that Congress is still working on the bill, which President Barack Obama wants to sign by Memorial Day. The House has already passed a bill, and the Senate overwhelmingly approved its version Tuesday. The House is now expected to take up the Senate version Wednesday. See more on the Senate passage of the credit-card bill.

Many of the proposals in Congress are contained in final rules, approved last year by the Federal Reserve and other regulators, that touch credit-card rates, fees and disclosures, and take effect July 1, 2010. Some in Congress want those protections in place now.

Here are four areas where observers think consumers and their credit cards may take a hit due to new rules:

1. Less credit for riskier borrowers

Less flexibility to change rates could lead firms to reduce the availability of credit to higher-risk borrowers, said Gene Truono, managing director at BDO Consulting, a New York-based financial services advisory firm, and former head of compliance at Chase Cards.

"The models that the banks have used over time for sub prime have been those that allow them the flexibility to raise rates quickly during a higher delinquency economy," Truono said. The recession will only add to the issuers' concerns about creditworthiness, he said.

"In times like these, when the economy is uncertain and unemployment is rising, [access to credit] will be curtailed," Truono said. "It will make even larger issuers skittish about offering new credit to less creditworthy borrowers because of the inability to rapidly change rates."

But consumer advocates say protections are needed and that complaints from firms are overblown.

"Just because companies can't use deceptive practices, that doesn't mean they can't price somebody for risk," said Frank.

Credit card fraud

The incidence of credit card fraud is on the rise. Credit card fraud may include theft or any kind of fraud that is committed with plastic money. This kind of fraud may be committed for obtaining unauthorized cash from someone else’s account or for obtaining products without the intention of paying for it. It can also be related to identity theft.

To overcome credit card fraud, the Emue Card has been introduced. The card generates as well as displays a code each time you use it. This will prevent fraudsters from misusing the card as you require a PIN to use the card. And the PIN is card specific.

Features of the Emue Card

The card has a feature in which you need an authentication that requires “Reciprocal Authentication”. It ensures that both the parties involved in the transaction are legitimate. It is a 12 button keypad and has a microprocessor and an embedded alphanumeric display. Both these features are integrated into payment card that is ISO-compliant.

The Emue Card derives its name from “End to End Mutual Authentication”. It has won many awards for its fraud preventing features. Credit card fraud has escalated over the years. Although chip and pin technology has managed to reduce the incidence of crime to a great extent, as far as mail order fraud, fraud over the phone and internet fraud is concerned, the number has escalated over the years. The fraudulent activities involving mail order fraud, telephone fraud and internet fraud is usually referred to as “card-not-present fraud” or CNP fraud.

Credit Card Debt Consolidation

Courtesy Editor : Akshay

Just as credit cards are a boon for the common man, it can be bane for many. And that is what it has proved to be for innumerable who are struggling to get out of debt. The credit card industry is following footsteps of sub prime mortgage crisis and experts are of the opinion that credit cards are equally responsible for contributing to the existing liquidity crunch. The fed has introduced new regulations related to the credit card industry and they will come into effect not before July 1st 2010.

Tame your debts

So, before your debts get out of hand, tame them. If you have multiple credit cards and all of them attract different interest rates, the best way to do away with your debts is credit card debt consolidation. When you consolidate all your debts, your debts become manageable. It is easier to handle a single debt account than to handle multiple debt accounts.

You can either avail a debt consolidation loan where you are required to pay to one creditor. You can also take assistance of a debt consolidation company if you are not confident enough to manage debts on your own. In a credit card debt consolidation program, the company you hire talks to the creditors so that the new repayment schedule makes debt payment easier for you. The creditors are also requested for lower interest rate and once the rate of interest decreases, the amount you are required to shell out every month also greatly reduces.

Attack your debts in 2 ways. You can either make payments for credit cards that have a higher interest rate or you can also make payments for credit cards that have a lower outstanding balance. Try to pay more than the minimum balance every month.

Changes in credit card payment policies

Since lenders have lost their money due to sub prime lending and consequent delinquencies, they are not keeping any stones unturned to protect their money from going down the drains. As a safety measure, credit card issuers have become very rigid in their lending activities. Even if they are approving loans, they are doing so at very high interest rates.

There are many credit card issuers who have changed their payment policies without notifying the credit cardholders. It is one of the major problems credit card debtors are facing. The credit cardholders continue using their credit cards as per previous terms and conditions. However, with the changes implemented, the credit limits have changed and so have the minimum payments. The consumers are shelling out extra cash for their ignorance as they are not aware of the changes made in the payments policies of the credit card companies.