New Credit Card Rules – How They’ll Help You
July 22, 2009
The new credit card rules that were signed into law as part of the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act a few months back will certainly offer some help to consumers in their effort to manage credit card debt.
Before we cover some ways that the new bill can help you with payment policies and interest rates, we have to remind you of one thing. Although the new rules will change the way credit card companies increase interest rates and set their payment policies you still want to pay off your credit card debt as soon as possible. Recent changes to the major credit score system, FICO scores, penalize cardholders who keep high balances on their cards more extensively than before.
Good news for parents worried about their kids and plastic
According to United College Marketing Services, a company that markets credit cards to college students, the average college student receives between 25-50 credit card solicitations per semester.
The new law will, among other things, keep credit card companies from offering free merchandise to college students in exchange for signing up for a credit card account from an offer made on or near campus. It will also keep issuers from sending new cards to students who haven’t actually applied for cards. Hopefully this will reduce student debt and be a good thing for college graduate credit scores.
More time to pay
The law states that issuers will have to give customers “a reasonable amount of time” to make their payments on monthly bills. When the law goes into effect, cardholders will now have due dates at least 21 days after they are mailed or delivered. The current requirement is only 14 days.
Double-cycle billing to end
Some issuers actually calculate finance charges for a current month’s bill based on days in the previous billing cycle as well as the current one, which racks up the finance charges. That will stop once the new law starts.
You might see your rate go up, but at least you’ll get notice
In the first year you have a card the credit card company needs to give you all the terms that will apply to your card in that first year, and they’ll have to hold your rate steady unless you’re more than 30 days late in making payment.
For any card account held after that one-year anniversary, issuers can raise your interest rate as long as they give you 45 days’ notice and any increase can only apply to new balances recorded after the start date of the new rate.
Your payment will go to high-interest debt first
If you have credit card balances at different rates on a single card, your payments are typically applied to the lowest-rate balance meaning your higher-rate balances will continue to accrue interest at that higher level.
Once the law kicks in, the credit card companies will have two choices – to either apply your payment to the highest-rate balance or to divide the payment proportionally to each rate level. It might be worth a call to your issuer after the law becomes effective to find out which system they’re using.
More disclosure on minimum payments
If you’re making only minimum payments on credit card debt, it’s like keeping your balances frozen indefinitely. Credit card issuers will have to tell cardholders how long it would take to pay off the entire balance if users only made the minimum monthly payment.
Issuers must also provide information on how much users must pay each month if they want to pay off their balances in 36 months, including the amount of interest.
Fee relief for subprime cards
Credit cards awarded to people with subprime credit typically offer low spending limits with very high fees to the extent that some users may spend half their balance on fees alone. Under the new law, the initial fees can be no more than 25 percent of the card’s credit limit, and in the first year, no more than 50 percent of the original credit limit can be used to cover fees.
Keep in mind that these provisions will likely come as a cost to more conservative users of credit. To make up the shortfalls in revenues these changes will bring, experts expect issuers to raise annual fees and cut back on credit card rewards programs, particularly for customers who pay off their balance each month.
This post about the new credit card regulations is produced in association with the Financial Planning Association (FPA), the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning.
Comments
Got something to say?