by Joseph Kenny | 12/21/08
Today, there are ample reasons for American consumers to be frustrated with their credit card companies. At the same time, recent suggestions that the Federal Reserve is contemplating changes in regulations that are meant to deal with some of the questionable practices pointed out by consumer advocates and cardholders alike.
One of the primary sources of contention is the rule that allows many credit card companies to frame their contracts in a manner that allows them to renegotiate the terms of accounts for any reason, regardless of timeframe.
Banking institutions currently have the liberty to dramatically increase interest rates on accounts. Not only are the new rates applied to future charges but an also be added to those already on the account. The problem point is that these hikes can even happen to cardholders that pay on time each month.
Yet, there are some other factors that may cause a change in rates. Missing payments on other loans, decreased credit score, or the lowering a credit limit by another lender all have one thing in common. They can all create the impression that a customer is higher risk.
It might also be pointed out that present economic circumstances could necessitate changes in account terms. Credit card accounts are open-ended and not secured by collateral. There is far more risk with these forms of accounts. The increase instances of delinquency and inflated risks of the marketplace have caused many banks to make prudent actions to marginalize risk.
Financial institutions and card companies are both attempting to regulate the levels of risk by conducting examinations of various accounts. These studies focus on those factors that qualify one as a high-risk customer such as late payments, using majority of available credit, etc.
Increases on a consumer's APR because of late payments on separate accounts or a bad credit score is a relatively new practice. Those banks that allow these practices do so because they help them to rate accounts relative to customer risk.