New laws in the US that will make it deliberately harder for people to develop too much credit card debt, will be agreed today by President Barack Obama.
The new restrictions, that are to be introduced next February, will put an end to some of the practices currently employed by credit card companies which have been accused of encouraging debt problems.
Among the main changes to the existing laws are ones that:
• require that cardholders be told how long it will take, and the total amount of interest costs involved, in paying off a card balance if they only make the minimum payments each month
• stop arbitrary interest rate increases and “universal default” on existing balances. When an account is placed in universal default, a lender can change the cardholder’s account to more expensive “default” terms when the lender learns the account holder has missed a payment on an account with another lender – even if the cardholder has not defaulted with the first lender
• require that promotional rates must last at least six months and stop lenders from raising rates for a cardholder in the first year after an account is opened
• require any penalty fees to be “reasonable” and “proportional” to the cardholder’s violation
• stop issuers from charging fees for spending beyond their limits, unless the cardholder chooses to allow the issuer to process the excess spending, and restrict any “over-limit” fees
• and require that cardholders must get 45 days’ notice of interest rate, fee and finance charge increases.
Where the US leads the rest of the western world quickly follows, so the new provisions could end up helping those looking to get out of debt across other parts of the world too. Although according to Sandra Quinn of UK card association Apacs: “Many of the new US policies already exist in the UK under the Banking Code and have done for four years.”
She also added that Apacs will “watch to see how the situation in the US develops.”
People who are one month or more behind with their repayments however, are the exception to the new restrictions on rate changes.
American borrowers who find themselves in this position will continue to run the risk that their card provider could decide to levy a higher interest rate if they decide are now a bad risk.
This could increase their risk of developing further debt problems as they struggle to keep up with repayments.
Debt help organisations recommend anyone in the UK who is in a similar position, and is finding their unsecured balances difficult to manage, to contact them for some free and impartial debt advice.
Reputable debt help companies, such as Hamilton Locke, Chiltern and The Debt People, offer a number of professional debt solutions.
These include Debt Management Plans (DMPs), Individual Voluntary Arrangements (IVAs), Trust Deeds amongst others. Debt Management Plans, IVAs and Trust Deeds enable repayments towards multiple unsecured balances to be gathered into one manageable payment.
For information on a number of debt help programmes, or for immediate debt advice, please call the number at the top of this page.
