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Mexico, U.K. Follow U.S. on Credit Card Rules

Mexico and the U.K. are following the U.S. by taking steps to rein in credit card rates and fees.

BOSTON (TheStreet) -- The U.S. isn't the only country where a credit meltdown led to new government regulations for the credit card industry. Here's a look at the credit card changes taking place in other parts of the world.


: Australia started enacting credit card regulations in 2003, during a time of prosperity and years before the global recession. However, this regulation benefited retailers, not consumers.

In 2003, the Reserve Bank of Australia responded to retailers' complaints about interchange fees and passed regulations to reduce the hidden costs and fees of

credit cards

. It forced banks that issued


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to reduce interchange fees from 0.95% of the transaction to 0.5%. While this was good news for retailers, it was lost revenue for banks and issuers, who turned to cardholders to make up this revenue. According to the

New York Times

, issuers cut credit card rewards and frequent flyer miles, and slashed the grace period from 55 days to 33-44 days. Some issuers also increased annual fees for reward cards.

The regulations also gave merchants the right to impose surcharges for credit card transactions. In some cases, the new fees exceeded the old ones.

Today, the interchange fee is a hot topic for American retailers who are disappointed it wasn't included in the Credit Card Accountability, Responsibility and Disclosure, or CARD, Act. According to the Government Accountability Office, consumers and businesses spent about $48 billion in these interchange fees in 2008.

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Issuers are lobbying against changing the interchange fee, saying the fee helps consumers by bringing them more rewards, reducing fraud and lowering their interest rates. They say lower fees would force them to squeeze credit and raise the cost of credit cards.

United Kingdom

: The U.K. government is trying to enact changes that are similar to those in the U.S. The U.K. Cards Association, which represents the credit card industry, is voluntarily making some of the changes. Implementation is required by the end of the year.

Government proposals require issuers to:

  • Change payment allocation so that cardholders pay off the most expensive debt first.
  • Provide better communication to inform cardholders that making only the minimum repayment is the most expensive way to pay off debt.
  • Stop raising borrowers' credit limits without their consent.

Like the U.S., issuers in the U.K. are increasing interest rates and reducing risk to adjust for the growing default rate. The average interest rate for credit cards reached 16.25% at end of December, the highest rate since October 2006 and up from 15.58% a year earlier.


: Canada passed credit card regulations in September 2009 that are similar to the CARD Act. They went into effect Jan. 1. Regulations required issuers to:

  • Inform consumers how long it takes to repay a balance by paying the minimum amount each month.
  • Give a 21-day interest-free grace period on all new purchases when a customer pays the full balance.
  • Obtain cardholder's consent before increasing his credit limit.
  • Provide advance disclosure of rate increases before they take effect.

The Canadian government is also proposing legislation that would give the federal finance minister the authority to regulate credit and debit card networks and their participants.


: Mexico is trying to limit interest rates and fees. In February, Mexican lawmakers approved a proposal that lets the central bank set ranges for interest rates that banks can charge for credit cards.

According to some reports, credit card interest rates in Mexico have fallen from over 40% on average to 32% during the past year, in part because some banks offered incentives to encourage cardholders to reduce their balances during a slumping economy. Bank executives say interest rates are high because of there's an increased risk of default and weak laws to recover debt in Mexico.


Reported by Bill Hardekopf of


Bill Hardekopf is the chief executive officer of

, which compares and rates more than 1,000 credit cards. He is the co-author of "The Credit Card Guidebook."