The new limits are predicted to have a big effect President Barack Obama has signed into law extensive new restrictions on the ability of US credit card companies to charge fees or raise interest rates. "With this bill we are putting in place some common sense reforms designed to protect consumers," he said. The bill is designed to protect credit card users from unexpected fees or increases to their interest rates. Some of the major US banks have warned the changes may reduce the amount of credit available to some card holders. They say this is because the new rules will make it more difficult for them to set rates based on the risk customers pose. Americans currently owe nearly $1 trillion (£630bn) on their credit cards. "This cements a victory for every American consumer who has ever suffered at the hands of the credit card industry," said Senator Christopher Dodd, chairman of the Senate banking committee. The US government has been concerned to tighten its regulation of the banking system in the light of the credit crunch and banking crisis. Big changes The new law, described as a credit card holder "Bill of Rights", is the first of a series of law changes designed to help stave off further financial crises. Among the main provisions of the new law are ones that: • stop arbitrary interest rate increases and "universal default" on existing balances. In universal default, a lender can change a cardholder's account to costly "default" terms from normal terms when the lender learns the cardholder missed a payment on an account with another lender, even if the cardholder has not defaulted with the first lender • stop card issuers from raising rates for a cardholder in the first year after an account is opened, and require that promotional rates must last at least six months • stop issuers from charging fees for spending beyond their limits, unless the cardholder chooses to allow the issuer to process the excess spending, and restrict any "over-limit" fees • require penalty fees to be reasonable and proportional to the cardholder's omission or violation • require that cardholders be told how long it would take, and the interest cost involved, in paying off a card balance if they make only the minimum monthly payments • require that cardholders must get 45 days' notice of interest rate, fee and finance charge increases Backing off One important exception to the new restrictions on rate changes are people who are one month or more behind with their repayments. US borrowers in this position will continue to run the risk that their card issuer can decide they are now a bad risk and levy a higher interest rate. "We will watch to see how the situation in the US develops," said Sandra Quinn of the UK card association Apacs. "Many of the new US policies already exist in the UK under the Banking Code and have done for four years," she said. In March, the UK government said it would bring in legislation to stop card firms from raising the credit limit of customers who had not asked for it. It also wants to ban firms from sending out unsolicited credit card cheques to their customers. In December, the credit card industry gave in to government pressure and agreed a new set of "fair principles" which would see card companies backing off from raising interest rates when customers fall into arrears on their payments. "We continue to talk regularly to consumer groups and the credit card industry and these discussions, along with proposals to provide further help to people in difficulty with their finances, will be reflected in the forthcoming Consumer White Paper," said the Consumer Affairs Minister, Gareth Thomas.



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