Monday, November 29, 2010

What You Need to Know about the New Credit Card Laws!

The Credit Card Accountability, Responsibility and Disclosure Act 2009 went into effect February 22, 2010. Basically it improves customer disclosures but doesn’t help with those high interest rates.

What we are seeing now is credit card companies increasing rates on existing customers (they can do this with just a 15-day notice) even if you have never had any lates!

The credit card companies are also lowering your approved limit on cards regardless if you had a great payment record.

When the credit card companies lower your approved limit on your card(s) it lowers your ratio of open debt to available credit, known as the “Revolving Debt ratio”. This can affect 30% of your score so it has an impact if they are eliminating some of your credit line.

Here are some of the “wins” for consumers:
  • Fee Restrictions – Starting on October 22, 2010 unless you give the credit card company permission they can’t charge you “over the limit fees” and if they do, they cannot exceed $25 or, if you are chronically late, $35. (This is a 50-80 billion dollar lose to the banks.)
       They also cannot charge you for making a payment over the
       phone or internet (they can, though, if you want the
       payment expedited).

       Limits fees on “subprime” cards, so always make sure you read
       all the terms and conditions.  (Less than 4% of consumers read
       terms and conditions).
  • Bans Double Cycle Billing – some credit card companies were billing for current and previous balances.
  • Credit Card Companies now has a mandatory 21-day grace period - statements must be sent 21 days before they are due – used to be 14 days.  If you were late you probably paid the high daily interest rates!  This took effect Aug 2009.  So make sure you pay by due date!
  • Gift Card – You gift card won’t expire for 5 years, so if you got one for Christmas or you Birthday and you stuck it in a drawer, it still might be good. Also card issuers cannot charge inactivity fees unless the card has not been used for 12 months.
  • Student Credit Cards – If you are under 21 you will have to provide a co-signer or be able to prove financial independence.  Otherwise, you will be unable to get a credit card.
  • Your Payments will be applied to the balance with the highest interest rate first.
  • You get a 45 day notice of interest rate hikes (used to be 15 days) – Any changes to terms and conditions must give a 45-day notice and if you don’t like the new terms you can “opt out”. Beware if you Opt-Out, they may be able to charge you 2-5%, up your rate to 29% and close your account!
  • Retroactive Rate Increases – you will have to read your cards terms and conditions but basically rates can’t be raised until after the first year of issuance and if offered a promotional rate it’s good for 6 months. I want to add that there are a few exceptions to the rule- so read the fine print.
The bottom line?  Since the banks are losing big bucks with the new guidelines, the average rate on new cards is 14.4% plus higher fees! (Hey they have to make it up somewhere, right?) Watch for them to raise rates in other areas.  And of course the worse your credit score is the higher your rates and fees.

No comments: