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Author: Subject: The best law of the Obama Administration
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[*] Post 404482 posted on 23-2-2010 at 05:33 Reply With Quote
The best law of the Obama Administration



New regulations, especially on bank credit cards, are going into effect. They are largely common-sense laws that, in my opinion, are long overdue.

Formerly, if a person fell behind in his personal debt payments, the bank could increase the interest he would be charged for the ENTIRE debt.shocked_yellow
Yes, that's right. A person could borrow $1000 at 5% interest, with the understanding that he had to pay $100 each month until it was paid off (so the interest would be about $50, leaving aside the minor amount of compound interest). But, if he were a week late on his first month's payment, the interest rate could be raised on the entire outstanding debt. If it were raised to, say, 30%, the interest is now about $300. A lateness of one week on a payment of $100 cost about an additional $250.shocked_yellow And the 30% rate would apply to any future borrowing on the credit card. Think of the unjustness--the agreement at the time the $1000 was borrowed was for one rate--5%--and then, the credit card company goes back in time and changes the interest rate for that loan to 30% as punishment for a late payment.

That's how it USED to be. Under the law Obama signed, banks may decide that they want to charge a higher interest rate in the future, but they are not allowed to make it retro-active. They can choose to propose a higher rate if a person is 60 days behind in making his minimum payment, and the higher rate will apply to any additional charges made on the card--but previous charges remain at the rate in effect when they were borrowed.

The borrower may decline to continue to charge onto the card at the new, higher rate if he wishes.

American banks used to change the due date for payments at will. They would move them around, so that it was more likely a person would miss a payment, and so incur penalty interest. This is now illegal.

Banks may not issue a personal credit card to people under 21 who do not have income (e.g. a job). This was formerly a way young people plunged themselves into heavy debt. Young people can still get a credit card with a parent as co-signer.

Well done, Obama. doffs_cap
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[*] Post 404487 posted on 23-2-2010 at 09:34 Reply With Quote


That change in the regulations was long overdue and in some respects I suspect that the banks had little option but to accept it.
However, I wonder whether they would have put up more resistance to it if they hadn't had the recent problems where several banks had to rely on government funds to bail them out?

That said, they are still making a generous profit on loans and even more profit on overdraft fees.
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