Credit card companies are business entities that strive to make a profit from the practice of offering credit to customers. What some may view as unethical practices by a credit card company are often attempts to secure financial strength and continued profits. As in all money dealings, there are also those companies that conduct business in a truly unethical manner.
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The U.S. Government has passed recent legislation to draw a line between business practices aimed at ensuring a profit and those that are deemed unethical. The federal government views unethical practices as those that are damaging to consumers and unnecessary for ensuring continued profitability.
What types of practices have been deemed unethical by recent legislation?
The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 set rules and regulations for the fees that credit card companies could charge customers. It also set rules governing how the credit card companies advertised their cards, fees, and benefits.
The Credit Card CARE Act set the following rules:
- Credit card companies cannot impose unfair rate increases. Some credit card companies used to increas rates at any time, for any reason. Additional rate increases that were deemed unethical include retroactive rate increases due to late credit card payments. The credit card companies used to increase rates on balances into the 20% range if a customer had a late payment.
- The new rules state that credit card companies must also keep special low introductory offer rates for at least six months.
- Credit card companies cannot use unfair fee traps. For instance, credit card companies used to have indeterminate due dates once bills were sent; customers who did not pay in time were charged a fee. In addition, if the due date fell on a weekend or in the middle of the day, the payments would be considered late due to the habits of the post office.
- Under the CARE law, consumers have at least 21 calendar days from the date the bill was mailed. Another provision of this part of the law stipulates that companies must apply payments to the highest interest balances first.
- Credit card companies must use plain language and disclose all fees and rates. Lenders cannot disguise credit card rate increases and fees with confusing language or small print. They must have all account terms upfront and in clear language.
- This fee and rate information must also be posted on the credit card company’s websites.
- Customers’ bills must list all charges and fees and explanations for those costs.
There are a few more requirements that are now in place. Credit card companies have tighter restrictions for marketing to college students and young people. In the past, college campuses were a prime market for attracting new customers and first time credit card holders, but federal regulators felt that the practice was unethical; they felt it targeted those with the least amount of knowledge about using credit responsibly and led young people into high debt.
Credit card companies are held more accountable for their business practices. They must post any changes to websites and file them with federal regulators. Fines and penalties are also increased under the law for violations of the new regulations.
Has there been new legislation for credit card fees for retailers?
Legislation in 2010, called the Durbin Amendment, restricted the interchange fees that credit card companies and banks charged retailers per credit card and debit card transactions. These interchange fees were started in the 1960s to cover the manpower cost of processing sales transactions by hand. Prior to the new law under the Durbin Amendment, credit card companies charged retailers around two percent of the total cost of the transactions. These fees amounted to billions of dollars a year passed on to consumers by merchants and gas stations.
Supporters of credit card interchange fee reform argued that computers complete current transactions with very little cost, and that the credit card companies and banks no longer needed the fees. Under the new law, credit card companies can charge no more than $.21 per transaction.
How do I know if a credit card company is unethical?
First, being an overseer of your own finances is one line of defense against unethical practices. Check credit card statements against receipts and contact the credit card company to make it right. Having a thorough understanding of the laws and regulations makes anyone a smart consumer. In this case, knowledge truly is power.
Secondly, stick with credit card companies that have high customer service ratings. JD Power conducts surveys to rate the best credit card companies and banks. If you feel that a credit card company’s practices are unethical, you should report the issue to the Better Business Bureau and state or federal credit card regulators.
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