As you know, the provisions from the Credit CARD Act are taking effect. Some of these changes definitely offer better protection, but it doesn’t mean that you can just ignore the letters that come through the mail. When it comes to credit cards, you will always need to read the fine print. Credit card issuers still have a lot of leeway, and you need to be on your guard. But good news first, let’s talk about the positive changes.
Consumer Friendly Changes to Credit Cards
For those struggling with credit card debt, there are some rather positive changes coming:
- Credit card issuers cannot retroactively hike your interest rate: This means that your past debt remains at the same interest rate, rather than heading higher.
- No more double billing: This confusing practice resulted in more money for the issuers, and made it even harder for us to pay down our debt. A couple of years ago, I was surprised to find that I owed money one month, even though my balance had been paid off. The culprit? Interest charges left over from double cycle billing. It’s a good thing for consumers that this practice will shortly be a thing of the past.
- Better billing practices: Issuers can no longer have due dates on holidays and weekends, and can no longer have midday cutoffs. Plus the bill has to come at the same time each month.
- Educational monthly statements: You will find that your monthly statement is about to become much more educational. Credit card issuers are required to tell you how long it will take to pay off your card (and how much it will cost you) if you only pay the minimum each month. A comparison to the cost if you pay off your debt in three years will be provided. And credit card issuers have to provide a counseling number for those interested in getting tips for paying off their debt.
- Repayment ability: Credit card issuers will have to take into account your ability to repay before they issue new cards, or before they raise your limit. This is also related to requirements that students under 21 have co-signers for credit cards unless they can prove their ability to make payments. (Further Reading: Here’s some reasons why you may want to cosign for your child’s credit card
Read the Fine Print from Credit Card Issuers
While the above changes are definitely an improvement, and might even be real eye openers for those who need a swift kick when it comes to changing their financial habits, credit card issuers still have a great deal of room to maneuver.
First of all, even though credit card issuers can’t hike rates retroactively, and even though they can’t raise your rate willy-nilly initially, they can still raise your rate at any time after you have had a credit card account for a year for any reason (after sending you 45 days’ notice, of course). On top of that, credit card issuers are welcome to lower your limit or close your credit card account without your input once they have given you the requisite notice.
Secondly, credit card issuers have not been restricted as to the types of fees that they charge. They can make up whatever fees they want, from charging you for paper statements, to instituting annual fees, to charging your inactivity fees if you don’t use your credit card. This means that you will need to read everything that you get from your credit card issuer. Many issuers purposely dress their notifications up like junk mail, so read them carefully and make sure it really is junk before you chuck it into the waste bin.
Finally, be aware that credit card issuers have no caps on interest rates or new charges. This means that they will still be able to double or triple your interest rate if you have one late payment. If you have credit card debt — especially if your balance is close to the limit — you will need to be extra careful to ensure that your payments arrive on time.
Bottom line: For those who practice responsible card use and pay off their balances each month, these card rules will probably change nothing. However, it is important to be vigilant and alert, watching for new fees that might be added to your account (especially watch for statement fees and dormancy fees), and for indications that your account might be closed.
For those who have debt right now, the new changes could help you pay down your debt faster, since you won’t have to worry about retroactive rate increases on existing balances. But you had better make a plan to get out of debt quickly, or the powers credit card issuers still have could cost you big.
{ read the comments below or add one }
Dear Sir,
Could you please tell me what do you mean by “retroactive hike”? I still can’t fully get it. For instance, my ending balance was $1293.34 on 12/07/09. They suddenly charged me $13.65 for finance charge interest while we were still within the promotional period.
Later in their 2/4/10 statement they charged me 39..09 for late fee because I didn’t receive their paper statement. And another finance charge of 12.60 was made.
Then on their 3/3/10 statement, they canceled the late fee payment but still collected the finance charges, the interest rate seems to be based on the whole
balance 8/07/09 when we began the promotional interest of 0% APR for one calendar year which is still effective by now.
Can you please explain what’s wrong with the new card act?
Thanks.
The CARD Act doesn’t protect against interest rates being raised due to missed payments. Even though you didn’t get your statement, the promo interest period ended with the late payment. And even if they waived the late fee, they might still count it as a missed/late payment and decided the intro period was void. That is something you would have to take up with the credit card company. The CARD Act prevents you having to pay higher interest on older debt when they change the interest rate going forward, but anything they did before the CARD Act went into effect on February 22, 2010, remains in effect now. So, it sounds like they made most of the changes before Feb. 22, and are carrying forward from there. That’s really something you will have to address with your card issuer.
I think it’s great how these sort of help to protect the consumers. However, I can see how this will hurt those who have good credit because there may just not be as many perks anymore.
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American finance solution
Everyone’s so worried about their credit scores, but if you think about it, there’s nothing bad about NOT lending. Who cares about some score when you are debt free and don’t need to borrow money?
Stop thinking about credit as something good because it’s not.
I recently fired 2 of my credit card companies. Man it was fun. If you breath on an application a card will magically appear in the mail, but to close one of those suckers down sure does make them squirm.
I personally am fed up with these companies and no longer want to play the games.
The credit card act is another one of those things where it helps one section of the population but hurts another. Less profits will just mean less rewards that responsible credit card users have been enjoying for years. If you ask me, it’s another clever way of wealth shifting that politicians like to do.
I’m sure they will find a way to make more money off us. I just canceled my citi card that told me I’m going to be charged money every year just for the privilege of potentially giving them business. It sure puts a new definition of “customer service”.
I think the main takeaway from these changes is that those in debt who are trying to get out will be rewarded by not being hurt by retroactive charges and paying off the highest interest debt first. But for those who are unable to dig themselves out and are digging deeper holes: sure, your interest is accruing at a slightly slower pace, but people will still accrue debt and hopefully they realize that this is not the solution to their problems.