The banking industry is going through a lot of changes recently. It is the time of unrest when both the banks and the consumers are confused about the effects that the new laws would have on their financial future. The CARD Act 2009, is forcing the banking institutes to change their credit card policies. Similarly, it is likely to have effects on the consumer behavior as well.

The new law may demand some changes in the old ways that were used by the consumers to improve their credit scores.

New ways to increase your score

The financial institutions and banks are fine tuning their lending practices to keep their profit rising even in the changed scenario. As the new regulation is expected to be working in favor of the customers, banks are looking into other channels to retain the revenue of their profitable credit card business. Hence, the customers might have to abandon some of the well known methods of increasing credit scores and adopt new ones.

Carry more credit cards: Earlier the customers were warned against carrying too many credit cards as they may run into more debt if they do so. But since the banks are now quick at lowering the credit limits on the cards, your debt-to-credit ratio may go up when your credit limit would go down. Hence, to keep your debt-to-credit ratio unchanged you may have to increase the number of credit cards in your wallet.

Maxing out credit cards: It was not a good idea before to utilize the entire limit of a card but with the new regulation, it may now worth maxing out some of your credit cards. Some creditors, especially the charge card lenders, don’t report the limit of their cards to the bureaus and while calculating your score FICO would consider the highest amount spent on these cards as your limit. Maxing out these cards may result in a more favorable debt-to-credit ratio.

No longer lower APR: The idea of requesting lower APR on the cards can backfire under the new circumstances. Earlier it was used widely by the consumers who were seeking relief from credit card debt. But such a request may now trigger a credit check and if you don’t have a satisfactory payment history, the creditor may increase your rate instead of lowering it. You may rather look for a balance transfer option if you want to lower the rate.

It may cause some initial confusion amongst the consumers as they are asked to abandon their old practices of improving credit scores and some may also experience a drop in their scores inspite of their best efforts to maintain it. It would be wise to be patient till the new legislation comes fully into effect and review your credit card agreement to understand your options better.

As the new laws are gradually taking effect, banks and financial institutions are modifying their rules to put up with the changing regulation. Bank of America has recently decided to abolish the overdraft benefit altogether in the light of the changes which would, henceforth, require the banks to limit their overdraft charges.

The Federal Reserve has set a new rule which would be in effect from 1 July 2010, would require the banks to get the consent of the customer prior to charging him overdraft fees. The Bank of America (BofA) has retaliated to this change by abolishing the overdraft benefits altogether.

Henceforth, BofA customers wouldn’t be allowed to over draw their accounts through debit cards and checks. The bank suggests that it is not always possible to inform each and every customer prior to overdrawing their accounts since most of these customers do it on a regular basis on debit card purchases and most of the time they do it unknowingly. Nevertheless, these overdraft charges cause inconvenience for both for the customers and the bank later. Some customers accumulate so much in overdraft charges that they later face difficulties even in repaying it.

BofA is all set to implement this new rule from June 19th 2010 on new accounts and from August on existing accounts. It is said that BofA is only the initiator as the other banks may soon follow its footsteps and abolish or put limit to overdrawn accounts.

However, the industry experts are skeptical on how the banks would compensate for their losses on overdraft fees, which amounts to over a billion dollar. According to an expert, the banks would look into recovering their losses on overdraft charges through other channels. One likely possibility is distributing the loss amongst the customers, who are not serial over-drafters, which would only increase the cost of individual banking.

With the President signing the new Credit Card Act of 2009 into law, how will your credit habits change – or will they? It is said that many users can now avoid the increase in rates on the existing balance and will find more time to pay on their monthly bills.

Let us take a look at the highlights of the new laws:

• Restrained hike in interest rates: The new law allows hikes in interest rate on existing balances only under limited conditions. This could come into play when a promotional rate ends or if a card holder makes a late payment. If there are new transactions, the interest rates on such transactions can increase only after the 1st year. For any significant change in terms of accounts must be made after a 45 days prior notice of the mentioned change.
• Billing practices: The due date for credit card payments will be same for all months and a notification of the bill must be made at least 21 days in advance of the due date. Payments made by customers will automatically go towards the highest interest rate balance first in order to pay it off faster.
• Time frame to pay off debt: Credit card companies will be using simple language on all materials related to a customer’s account and at periodic intervals display on the statements, the time customers would require to pay off the debt if they made only the minimum payment each month. The statement must also contain information on the interest charged each time the customer made a minimum payment on his dues.
• Opt for an overdraft program: According to the new law, customers will no longer be enrolled in to an overdraft program automatically, but will have to express the desire by opting to be enrolled in one. Hence, if any card holder exceeds the limit on their card, the card will be declined unlike in the old rule where the consumer could still transact in lieu of a fine.
• Laws for young customers: Individuals under the age of 21 looking for credit cards must show proof that they have the means of paying off on their cards or get a co signer before they can be given a card.
• Finance charges: The two-cycle or double-billing cycle model is being done away with. Finance charges will be computed based on purchases made in the current billing cycle instead of going back to the previous cycle in order to calculate the interest charges. This relief on double-billing-cycle should help debtors to pay off their debts on time.
• Subprime credit card relief: If you hold a subprime credit card, creditors can no longer charge more than 25% upfront fees on your available credit limit in the first year of the card. Some credit card issuers are thinking of charging high interest rates on these high risk accounts instead.

What credit card holders must remember here is that these laws do provide them some relief but do not protect them from every thing. Although creditors need to give customers a 45 days notice before increasing their rate, the new law has not put any cap on the percentage of hike that creditors can levy. So, no matter what the laws are, make sure you use your credit card wisely so that you don’t run up debts you cannot manage to pay back.