Federal Reserve Acts to close credit card loopholes

For many consumers with bad credit, the U.S. Government’s Credit Card Act was a lifesaver, putting an end to the exorbitant fees enacted on many credit cards aimed at subprime borrowers.

Before the act, a card could come with a low monthly limit of about $300, but charge a number of monthly fees directly to the card – leaving the consumer far less to work with. Under the new rules, a credit card company can only charge up to 25 percent of a card’s credit limit in fees – or $75 on a $300 card.

Yet some companies had found a loophole in this ruling by issuing high sign-up fees, which weren’t considered in the original legislation. These would be added onto the additional fees, making charges of more than 25 percent of the credit limit.

The U.S. Federal Reserve announced that they have recognized the problem and are looking to rectify it through an amendment to the rules. The new proposal would also include companies who offer promotional low interest rates, then revoke them for no reason. These companies would be prohibited from doing so unless a borrower was more than 60 days delinquent on a payment.

Maintaining a credit card and paying the monthly balance can be a good way to improve one’s credit report, but travelers might be better off avoiding the exorbitant fees and looking into a bad credit auto loan instead. By using an online car payment calculator, a consumer can factor in their current expenses in order to ensure they can afford a loan, which will improve their credit over time if they continue to pay off the balance regularly.