Credit Card Fees & Interest Rate Reform

May 20, 2009

The Credit Card Accountability, Responsibility, and Disclosure Act or “Credit CARD Act” passed the Senate yesterday. The bill will now go through the legislative process of merging with the Credit Cardholders’ Bill of Rights, passed by the House earlier in 2009, before a final bill can be given to the President. Here is a look at some of the details that Senators Dodd and Shelby had proposed for the bill.

Credit Card Billing Cycles

A couple of the major provisions in the bill pertain the billing cycle, a part of the credit card industry that has come under substantial scrutiny in recent years. The proposal would require credit card companies to send out bills at least 21 days before payment is due. Further, no payment can be considered late unless the bill was mailed at least 21 days prior to payment being due.

For those who are frustrated by the 30-day billing cycles, which means the bill is due on a different day many months out of the year, the proposal looks for bills to be due on the same day every month.

Credit Card Interest Rates

Further, for those who are going to be getting a new card soon, there is no need to worry about interest rates for the next year. During the first year, the rate must remain the same. For those who may have large balances, there is more good news. It’s proposed that any rate change will not apply to existing balances, those are immune from interest rate changes. Also, along these lines, any payments made must first be applied to the higher rates, which should help some consumers pay down that debt quicker.

Student Credit Cards

Credit card companies that market specifically to college students will find some changes as well. Any account holder under 21 will have to have a cosigner over the age of 21, or will have to prove they have the independent means to pay back any debt incurred through the use of credit cards. Marketing credit cards to students and the trouble that often ensues has also received a significant amount of attention over the past several years.

Implications of Credit Card Bill

There is some debate on what impact these credit card reforms will have on credit card companies. Because the riskier borrowers are the ones who will receive the most protection from these changes, some say this will limit credit to those individuals. The thinking is that if those people are not seen as lucrative as they once were, credit card companies will have less interest in pursuing those accounts.

That could change significantly the mode of operation for some companies. Many credit card companies pursue those with poor credit histories who may be trying to rebuild their credit. In order to manage the risk of lending to those with bad credit, the credit card companies may tighten lending rules; making unsecured credit for those considered higher risk much more difficult to come by.  Of course, some would argue that this group of people shouldn’t have been granted credit in the first place.

Fees and interest rates being reduced to help consumers will likely eat into the profitability of credit card companies. To help make up for the shortfall in revenue, some features of credit cards, such as those extremely favorable terms for more responsible credit card holders, may be a thing of the past.

Many of the changes will not go into effect for nine months to give credit card companies time to adjust to the new policies.  Some consumer groups are concerned that companies will actually raise interest rates and fees until then.


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