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Credit Cards & the Dodd-Frank Wall Street Reform and Consumer Protection Act

Obama signs Wall Street Reform and Consumer Protection Act

On July 21 of last year, President Obama signed the Wall Street Reform and Consumer Protection Act in response to the worst economic collapse since the Great Depression. The act contains many provisions aimed at better regulation and oversight of the financial industry, and it was primarily penned by former Senator Chris Dodd of Connecticut and Representative Barney Frank of Massachusetts.

One of the major provisions in the act called for the creation of an oversight council, chaired by the Secretary of the Treasury, whose goal would be to enhance the integrity of the financial system and better regulate the institutions that operate within it.  Another example is a provision that forces banks to back up their high-risk decisions with actual capital they stand to lose if their stock market gambles fail. Furthermore, banks can no longer offer predatory loans to unsuspecting home buyers that won't possibly be able to pay them off, small businesses are now protected from high interest rates on credit deemed unreasonable, and there are hundreds of other provisions aimed at creating a strong foundation for our financial system that won't crumble when another crisis hits.

This legislation was a crowning achievement for long-time advocates of financial reform.  And those who supported it strongly believed that it would provide better financial security for everyone in this country, not just the banks.

But one concern is how the changes will affect credit card companies and, in turn, your credit card payments. Fees are being imposed on credit card issuing banks in order to pay for an emergency liquidation fund and the costs of enforcing new regulations. One would hope that many of these major banks, which were recently on the verge of failure and were bailed out by the taxpayers, would be thankful and accept these new fees at no cost to the consumer. Unfortunately, that may not necessarily be the case. After these reforms went into effect, it is widely recognized that credit card interest rates and other fees have increased to compensate for future "lost profits."

Of course, this doesn't necessarily mean you are doomed to a life of high interest rates. Many credit cards will still offer competitive rates that are generally considered to be fair and reasonable to those with good credit. But before you sign up for a any credit card, make sure you read the application carefully and know your rights as a consumer. Having and maintaining good credit is important, and part of this process is taking the time to understand the details of how your credit card works.

In the long run, maintaing good credit should theoretically be easier with a more stable financial system. However, while the economy is still in recovery, be cautious with your credit, use it wisely, and be on the constant look out for low, fixed interest rates to take advantage of when the need arises. Many credit cards have 0% interest for the first 6 or even 18 months, which can be a huge benefit to consumers with good credit, so take advantage of these offers while they last.  As credit card rewards programs are cut and fees are on the rise, no interest credit cards may unfortunately find themselves on the cutting block soon as well.

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