As a reaction to the over-indebtedness of many US consumers and to get some relief from predatory credit and lending practices a new law offers safeguards to consumers. The Credit Card Act of 2009 partly resorts to bans as well as approaches that are based on informational and behavioural insights.
The Act imposes limits on interest hikes on the existing balance. An interest rate can never go up on an existing balance unless a consumer has a variable rate card, a promotional rate has expired or if a consumer is more than 60 days late making a minimum payment. Furthermore if the interest rate should go up for future purchases, credit card companies have to give consumers 45 days notice before they apply a new rate. In these cases, consumers have the right to cancel the card.
To support consumers in better understanding the consequences of different payments, credit card companies have to inform consumers how long it will take them to pay off their balance by including information on how long it will take to pay off the balance if only minimum payments are made. And the statement needs to tell consumers how much they would need to pay each month in order to pay off the balance in three years. - This requirement supports consumers in the processing of information and takes into account their cognitive limitations.
In addition to this, restrictions on over-the-limit-transactions are based on behavioural insights. As a standard procedure, a transaction that takes a consumer over the limited, will be turned down. If a consumer wishes over-the-limit-transactions, he or she must tell the credit card companies that he/she wants such transactions. In doing so, consumers are still free to choose over-the-limit-transactions, but a consumer-friendly default is set for the many who do not want this.
For further information, see: http://www.federalreserve.gov/consumerinfo/wyntk_creditcardrules.htm and http://www.federalreserve.gov/creditcard/
Source: US Federal Reserve