Credit limit cuts: one more reason we need a CFPA

Thanks to the success of the Credit CARD Act this June, credit cards have become a little more consumer friendly and will continue to improve as aspects of the new laws come into place.  However, a recent New York Times article pointed out one of the many areas that the Credit CARD Act failed to cover: credit limit cuts.

The article says that the absence of regulation is the result of credit limits being excluded from the list of “significant terms” that now requires credit card issuers to provide consumers with advance notice of changes to interest rates and late fees.  The article goes on to quote one of AFFIL’s Partners:

One reason credit limits were left out of the law is that they were never among the terms previously regulated, says Ed Mierzwinski, director of the consumer program for advocacy group US PIRG…. “The lowering of credit limits has largely been post-meltdown,” said Mierzwinski. “It had not grabbed the attention of Congress until the bill was almost done.”

Research by the credit scoring company FICO shows that in the 12 months ended in April, 58 million people had the amount of available credit on their cards reduced.

For consumers, this sudden loss of credit not only has an impact on their buying power, but can also be extremely damaging to their credit score, which is calculated in part based on the amount of credit available versus the amount in use.

Consumers deserve to be protected from arbitrary and instant credit limit cuts, and Congress shouldn’t have to think of every little clause before passing a consumer protection law.  That’s why we need a Consumer Financial Protection Agency; to help us fill in the gaps, avoid drawn-out legislative process to fix vital, but minute, details, and be responsive to the concerns of consumers.  For more information about the Consumer Financial Protection Agency, click here.

(Photo: byoogle)