Commercial Law International

By: Carsten Lexa

On August 13^th, 2009, I wrote an article here on Commercial Law International about the “secrets” of the US credit card business and about how the existing rules make it hard for customers to pay off their credit card debt. On November 3rd, 2009, I wrote in a the second article about a Goverment proposal regarding new legislation for the credit card business.

Now, coming into effect on February 22, 2010, the Credit CARD Act will apply to credit card contracts between banks and consumers. This Act adresses many of the criticisms consumers have had about credit cards and the high amount of credit card fees charged each year. Interestingly, the Act also applies to contracts made in the past. Let´s have a look at the most interesting new rules.

1. The Act requires card companies to give cardholders 45 days notice of any interest rate increases. In the past, interest rates could be changed within 15 days notice in most cases.

2. The Act gives cardholders the right to cancel their card and pay off their existing balance at the existing interest rate and repayment schedule if they get hit with an interest rate hike. Cardholders also have 3 billing cycles after the rate increase to say no to the new terms.

3. Beginning in February, the interest rate on existing balances can only be raised if a cardholder is more than 60 days late on payment. After a rate increase, if cardholders pay on time for six consecutive months, their interests rates must have returned to the rate it was before the rate increase.

4. The Act also adresses the problem of “payments above the minimum”. In the past, cardholders send in a payment for more than the minimum due – let´s say the minimum was $ 200,00 and they send in $ 300,00 and let´s also assume that they had two balances at different interest rates. The extra amount of $ 100,00, that was send in, would go to the card with the lowest interest rate.

The new law puts an end to that. According to the Credit CARD Act, the additional amount paid will go towards the higher-rated balance.

5. A long time ago, cardholders had 30 days from which to make their next payment. Over time, that grace period was reduced to 25 or even fewer days. The Credit CARD Act states that the grace period will be at least 21 days long from the date the credit card bill is delivered.

6. The Credit CARD Act finally improves the information the cardholder receives regarding the repayment of the balance. Let´s be true about that: Most cardholders have problems calculating the time they need to repay their credit card debt, if only the minimum is paid.

The Act gives cardholders mandatory information regarding repayment: It demands that creditors print on their statements if the debtor makes the minimum payment only (with no further increases in debt) how long it would take to retire the debt and how much the debtor would pay in interest combined. It also requires creditors to print on their statements the payment it would take thecardholder to retire the debt in three years, how much the debtor would pay in interest combined and the difference than if the debtor was to pay only the minimum payment.

This new Credit CARD Act is surely not the answer to everything regarding credit card debt and debt repayment. But it should relieve the US consumers of some of their burdens regarding credit card debt – and every bit helps.

For inquiries please contact the author: kontakt@kanzlei-lexa.de

By: Ainsley Brown

The safety of the people is not the supreme law

While terrorism, terror financing and constitutional principles such as the rule of law and Parliamentary supremacy are not the usual subjects covered here at Commercial Law International, this seeming break from tradition is in fact not such a stretch.

As our moniker indicates Commercial Awareness is Global – it is important to note and as will soon become clear, coverage of this case in no way departs from this.

This landmark ruling is instructive for the “normal” subjects covered on this blog because it illustrates the legal limits imposed on the state – read the government – as it pertains to its ability to interfere with the assets of an individual (natural or juridical). These limits are even justified, as their Lordships have ruled, when combating the scourge of international terrorism. As the Deputy President of the Court, Lord Hope of Craighead, put it: “Even in the face of the threat of international terrorism, the safety of the peoples is not the supreme law.” In other words the government of the day only has as much power as Parliament has allowed it to have; the will of Parliament being express of course in the laws its passes.

The offending powers struck down by their Lordships are the Terrorism (United Nations Measures) Order 2006 and the Al-Qaeda and Taleban (United Measures) Order 2006. The Orders were issued by the then Chancellor of the Exchequer and now Prime Minister Gordon Brown in response to United Nations (UN) Resolutions passed in response to the September 11th attracts. The Resolutions sought global co-operation on combating the financing of international terrorism.

Unlike in many other countries the United Kingdom under its UN obligations did not pass legislation in order to give effect to the Resolutions. Instead, the Chancellor issued these Orders, empowering Her Majesty’s Treasury (Treasury) to seize the assets of suspected terrorist, Al-Qaeda and or Taleban members or supporters. The seizures could take place on mere suspicion without an hearing and would not be under scrutiny of the courts through judicial review.

The case was the first to be heard in the newly minted Supreme Court when it opened last year. The appeal was brought by five men whom successfully argued their case in the High Court that the Orders were unfair and breached their fundamental right guaranteed by the laws of Britain; however, they were later over turned by the Court of Appeal.

The question before their Lordships though a simple one was non the less a profound one. And it was this when Parliament empowered the Treasury to make orders did it in turn give the Treasury the power to “interfere so profoundly with individuals fundamental rights without parliamentary scrutiny[?]”

With word such as “oppressive,” “paralysing” and “draconian” peppering the decision, their Lordships answered the question with a resounding NO!

In a nation such as Britain, with a “unwritten constitution” it must always be remembered that Parliament is supreme and it is only through Parliament that the government has the exercise power. Moreover, when such power involves the interference with an individual’s basic rights such authorization cannot be implied but must be explicit. In any democratic-capitalistic society access to the courts and property rights are sacrosanct. As Lord Phillips of Worth Matravers, the President of the court put it: “Access to the court to protect one’s rights is the foundation of the rule of law.” And without the rule of law there can be no liberal-democracy.

For those that would say that this ruling is just another example of judges legislating from the bench in breach of Parliamentary supremacy, Lord Philips has a stern rebuke. His Lordship countenanced with “on the contrary it upholds the supremacy of Parliament in deciding whether or not measures should be imposed that affect the fundamental rights of those in this country” without explicit grant by Parliament.

It is important to not that Supreme Court are not saying that these laws are in and of themselves illegal – not at all. However, what their Lordships are saying is that if the government of the day wants exercise such extensive powers they much first seek and then be granted Parliamentary approval. Lord Hope put it best: “If the Executive considers that such far-reaching measures are necessary or expedient for combating terrorism or honouring the United Kingdom’s international obligations it must obtain approval for them form Parliament.”

In response to the judgment the Gordon Brown’s is rushing through Parliament the Terrorism Asset-Freeze (Temporary) Provision Bill which is expected to have retrospective effect and by and large mirror the quashed Orders. If all goes to plan the Bill will become law some time this week.

By: Rechtsanwalt (Attorney) Carsten Lexa, LL.M.

On August 13^th, 2009, I wrote an article here on Commercial Law International about the “secrets” of the US credit card business and about how the existing rules make it hard for customers to pay off their credit card dept. Now, a new Goverment proposal tries to help customers to reduce their credit card debt more quickly.

The proposal centers around four major issues:

1. Credit card companies should be forced to allow customers to pay off their most expensive depts first. Currently, very often customers pay off their cheaper depts first and allow charges to accrue for higher interest rates.

2. Currently, a lot of US-Americans pay only the required minimum of their credit card balance each month – often as low as 2 percent of the balance. Many of them could pay more – but they don’t, even though the interest rate they are paying on their credit card balance is considerably higher than what they pay on other things and compared to what they’re getting in interest income from their savings account. According to the Goverment proposal the minimum monthly payment level would be increased. This should help to repay credit card depts faster.

3. Very often, credit card limits are increased by the credit card companies without prior consent from their customers. At first, this seems to be good, because the customers receive a bigger financial leeway. But on the other hand, because of the low minimum that must be paid each month and that is being paid by the customers, the debt on the credit card raises. The Goverment proposal would ban the practice of limit increases on credit cards or at least will require customers to opt in to increases.

4. The fine print of many credit card agreements say that credit card companies can change the interest rate (APR) at any time, for any reason, as long as they give 15 days’ or 30 days´ notice. Further explanations are not necessary. The Goverment proposal would impose tighter rules on increasing the interest rate on existing debt without an explanation that fulfills certain requirements.

It must be stressed that these four major issues are currently only parts of a Goverment proposal. Whether or not these issues will become law is not sure yet. Consultations on the changes to credit and store card regulation will run until January 19^th, 2009. Then it will become clear whether or not the regulations on credit and store cards will help US-Americans to pay off their credit card debts more quickly.

For inquiries please contact the author: kontakt@kanzlei-lexa.de

By: Ainsley Brown

The African Development Bank (AfDB) has engineered a legal support wing charged with the responsibility of evening out the imbalance in legal expertise that many African nations face when negotiating complex commercial transactions. It will also serve as a necessary firewall for these nations by providing top notch legal advocacy when facing litigation, especially from vulture funds.

Vulture funds?

Vulture´s Sunset?

The aptly named vulture funds or as better known in investment circles:  distressed debt or special situations funds, are those hedge or private equity funds that buy up debt  -in this case sovereign debt – at very low rates in the market or directly from a company or nation at a point when either is illiquid and distressed.  Circling like vultures they buy up this debt with the intention of later bringing suit for recovery at grossly inflated prices as compared to what they paid for the debt.

Most of the cases brought by Vulture funds are either brought in US or UK courts, a point that has not gone unnoticed by NGO´s and legislators alike in both countries. Due to pressure and effective information dissemination by NGO´s, they have managed to bring the issue to the fore enough to see legislation introduced in both the US and UK aimed at curbing the vultures.

The question now is whether these new pieces of legislation, if passed, when combined with the new AfDB legal support facility will be enough to keep the vultures at bay?

It is my hope that either by themselves or combined they are not so watered down and ineffective that they are paper tigers but are the roaring lions they need to be to take on such a monumental task – let’s hope.

By: Ainsley Brown

The US Senate has passed its version of the American Recovery and Reinvestment Bill – very good news – as the President comtinuses to use the bully pulpit to sell the stimulus package to the American people.

Now begins the tough negotiations to reconcile the Senate and the House of Representatives versions of the Bill.