Credit Score Articles

Credit card reforms have hurt some consumers more than they've helped

When Congress passed the Credit Card Accountability, Responsibility and Disclosure Act last year, many consumers envisioned that it would allow them to climb out from under their debt.

However, according to a report in the Fort Collins newspaper the Coloradoan, many consumers have only been hurt as a result of the new financial laws. Soon after Congress announced that it would even consider the law, most credit card issuers went to work increasing their rates and fees before the governmental regulations would have been able to limit them. This left a lot of Americans, particularly those on a fixed income who were only able to make payments at or near the minimum, with a big problem that could damage their credit scores.

The paper said that credit card issuers successfully boosted rates by several percentage points before the passage of the law because a measure that was introduced in the House of Representatives was voted down by the Senate. The regulation, which was introduced by Colorado Democrat Betsy Markey, would have put a freeze on hikes in both interest rates and fees credit card companies could charge.

The paper said that credit card companies are still allowed to boost their rates and fees today, but that they must be able to prove those increases serve a purpose; they can't be enacted arbitrarily, and they can't be outside the realm of reason.

"I think it a balancing act. It's always a balancing act between protecting consumers and allowing companies to operate and make a profit," Markey told the paper. "The law is the law and if people feel as if they are being unfairly treated, I encourage them to register a complaint through my office."

The paper said that a recent survey found that 55 percent of respondents were already paying as much as they could toward reducing their credit card debt before the new laws were enacted, so those that were only able to pay the minimum before rates were increased are still facing the same problems, except they have been compounded by their accounts amassing a higher total above the principal.

Only those consumers that pay above the minimum will see their debt decrease significantly. The new laws only require that the amount paid over the minimum will go toward the portion of the balance with the highest interest rate.