by RB Capuz

Created on: February 25, 2010   Last Updated: February 26, 2010

In a bid to protect consumers from fluctuations in credit card interest rates, the Federal Reserve has issued new credit card rules.

Since February 22, credit card companies can no longer increase their rates within the first year after the account is opened. These companies are then required to give credit card holders a 45-day notification if they are planning to increase their rates after the first year.

According to American Banker’s Association, these new rules are the most comprehensive ever implemented and can really help consumers to manage their credit card debt.

Under the new rules, credit card providers can only charge fees on the credit card holder for transactions that exceed his or her credit limit after obtaining the consumer’s consent. Another notable provision in the law is that the companies will be thwarted to issue credit cards to individuals under 21 unless they have the financial capability to repay their debts or a co-signer can make the required payments if the cardholder failed to do so. This is a welcome change, considering that a substantial portion of credit card debts belongs to this age group.

Confusing billing processes and cut-off periods can be prevented as due dates will be the same month after month. Initial payments will be applied to balances with the highest interest rates, which will help cardholders pay their debts easier and at a cheaper cost.

Consumers will be glad to know that there will be no rate increases for their existing credit balance - except when they fail to meet their payment 60 days after the due date. With this, they can easily improve on their credit score. Credit history is one of the most important factors that banks and other financial institutions review whenever you apply for a loan. If the individual has a good credit standing, chances are that the loan will be approved. Credit scores therefore represent the credit-worthiness of that person. These figures will be used as a means for lenders to evaluate the potential risk of lending to an individual.

As these new rules are set to be implemented February, some lenders were already pushing through rate increases since last month, getting the ire of the Congress who passed the legislation (that was signed by President Barack Obama) in 2009. Other provisions of the law are said to be implemented later this year.

It remains to be seen whether these changes could really protect credit card consumers or not. But this early,  lending firms are already exploring some loopholes that could lead to more problems for the consumer market.

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