In the past, banks had no problem making money off of consumers and their credit cards. With hidden fees, delinquency charges and unregulated interest rate hikes, the credit industry was quite lucrative. However, after waves of financial crisis has lead many into credit negotiations or bankruptcy, the government stepped in to better protect consumers and increase regulations of lending practices.
President Obama’s CARD Act has made consumers more aware of their rights and spending habits, while making it more difficult for banks to make money off of fees and penalties. With new regulations in place the banks have become more savvy about how they make their money. The latest trick: a “no-limit” credit card offer.
No Limits, No Problem?
Some of the big name banks have begun moving away from traditional credit lines and are now offering what is called “credit access lines.” It essentially removes the spending limit from a card and promises more “flexibility” in spending. The credit card companies are spinning it in such a way to say they are helping consumers by allowing them to spend more than they could have before risk free and without the need to take out a separate credit line.
However, just because there is no set limit doesn’t mean that there isn’t one. It simply means that the limit is reached when the bank says it is reached, without any warning to the consumers. Also, the more they charge on their credit line, the more they risk credit damage by holding a debt-to-limit ratio that is considered too high. Further, many consumers don’t know that with more flexibility comes a much greater need for responsibility. In other words, without a spending limit and the potential for over-limit fees, for many consumers it could be a debt disaster.