On August 20, 2009 two protections
went into place thanks to the CARD Act. Several more protections will
go into place in February 2010. The CARD Act was designed to protect
consumers from credit card companies. And while many of the provisions
help consumers, the act fails miserably to address some of their key
complaints.
So what hasn’t changed? Read on…
Arbitrary Credit Limit Decreases Are Still Perfectly Legal
– According to a study published last week by FICO, roughly 24 million
consumers saw a decrease in their credit limits during the study period
dating from October 2008 through April 2009. This is slightly more than
the results of a similar study performed by FICO covering April 2008
through October 2008 where the amount was roughly 22 million
cardholders. Arbitrary means that the consumers didn’t prompt
the lender’s actions by doing something adverse with their credit such
as miss payments. If the two populations are mutually exclusive (i.e.
there’s no overlap in study populations), that means that roughly 46
million consumers saw their credit limits reduced during the one-year
period dating from April 2008 to April 2009. Just to give you an idea
of just how large that group is, it represents 23 percent of the entire
population of consumers who have credit reports.
The new
provisions of the CARD Act do nothing, absolutely nothing, to prevent
credit card issuers from continuing to do the same things. In fact,
they don’t even have to notify you of the credit limit decrease AT ALL
– unless they used credit data to make their decisions, and even then
they don’t have to notify you until after the fact.
Arbitrary Account Closures Are Still Perfectly Legal –
Another widespread practice by credit card issuers is to close down
accounts that are either inactive or underperforming. Today card
issuers are allowed to continue this practice, and nothing in the CARD
Act prevents it. In fact, just like credit limit decreases, the issuer
is not required to give you notice ever, unless the decision was made
when reviewing a credit report. And in that case the notice doesn’t
come until after the closure. Many consumers find out that their
account was closed when they are declined at the register.
So, you tell me: Does the new CARD Act make you feel more protected from credit card issuers?
John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.
Credit.com offers straightforward tips and advice to help you make smarter financial decisions. Visit Credit.com to sign up for your FREE Credit Report Card and find out where you stand today!
{ 4 comments… add a comment }
My credit limit was reduced . The explaination for this was a credit score change. I checked my score and found that I had a 750 score, once considered a B is now considered a C. The reason, the scoring system had changed. The top score of 850 is now 990.My sister had the exact same thing happen to her. We should be better informed about how the finacial industry changes the credit scoring system. People need to know that the top score has been increased 140 points, making most scores drop drastically, enabling credit issuers to reduce your limits and raise rates based on something so totally out of our control.
I also think a temporary freeze on interest rates for consumers who never triggered a rate increase (by serious delinquency etc.) is in order. The 22% – 37% some cardholders are seeing is unconscionable and contributing to increasing delinquency and defaults.
Terri – you’re looking at two different scores. The score your bank used was probably the FICO score. FICO scores top at 850… I think the VantageScore tops at 990. Different ranges, different scores.
I have just paid off four credit cards and want to close them now. I heard that would negatively affect my credit score. Is that true? I do not use them at all anymore and now pay cash for everything. Thanks
Rick