New credit card rules and what they mean for you
Finally the Federal Reserve, the Office of Thrift Supervision and the National Credit Union Administration decided it was time to act to help consumers get a fairer deal with credit card issuers. Unfortunately improvements required won't take affect until July 1, 2010 unless your credit card company decides to do so voluntarily at an earlier date.The most important change is that universal default will no longer be legal. Right now using the terms of universal default a credit card issuer can jack up your interest rate to the maximum allowed by law - in some states as high as 30 to 40% -- if you missed a payment on another card. We hear complaints almost daily from people who saw the interest rate on all their cards increase because they had one late payment on one card even though they've paid on time for years. In many cases this one late payment was an error corrected on a later billing, but the damage was done.
As long as you make at least the minimum payment on existing balances within 30 days of billing, you won't see your interest rates jacked up to 25 or 30% or more. Banks can still increase rates if the card has a variable rate or a promotional rate set to expire.How will the new regulations help you:
* You will be able to save money in interest payments by paying off your highest balances faster. Right now credit card issuers regularly apply your payment above the minimum balance to the outstanding balance with the lowest interest rate. That means balances at higher interest rates continue to build up more interest. The new regulations will require issuers to apply payment to the highest interest rate balance or proportionally to all balances.
* You will get at least 45 days notice of a change in terms on your credit card to give you time to react and adjust to changes in terms and conditions. Prior to this new rule you only got a 15 days notice.
* You must be given more time to make a payment. Regulations will require a reasonable time of at least 21 days to pay your bill.
These new regulations also prohibit:
* Unfairly computing balances with two-cycle billing. Right now creditors calculate interest based on more than one cycle of charges. That will no longer be allowed.
* Unfairly adding security deposits and fees for issuing credit or making it available.
* Excessive fees for sub prime cards. The fee will be capped at 50% of the credit limit and allow cardholders to pay off initial balance over a year. Fees exceeding 25% must be spread over no less than six months rather than
charged as a lump sum.
Banks believe they'll lose a lot of money. "By eliminating the issuer's ability to raise rates at 'any time for any reason,' these regulations force banks to give up a lot of interest revenue and the timing couldn't be worse for these financial institutions. They are going to have to make adjustments to their own business model. I wouldn't be surprised to see them raise a few fees and interest rates to make the most of this time before July 2010," says Bill Hardekopf, CEO of www.lowcards.com. "People who have recently received a large rate increase are asking if this will be retroactive and benefit them. I don't think it will be retroactive."
He expects banks and financial institutions to respond by:
* Reducing the availability of credit. They may accept fewer application for credit cards. It will be much more difficult for those with poor credit to qualify for a credit card.
* Limit their exposure to risk with lower credit limits and higher interest rates. "The banks are saying that they may have to raise rates for everyone to cover potential losses for risky customers," says Hardekopf.
* Reduce intro rate offers for balance transfers. "In the last six months, we have seen several issuers reduce intro offers from 12 months to six or three months. They are also increasing the rates from 0% to as high as 3.99%," says Hardekopf. "Nearly every issuer charges a 3% balance transfer fee and most have eliminated the maximum cap for this fee."
Unfortunately, I believe Bill Hardekopf is right about how the banks will respond initially to these changes. The only way we can fight back is to stop using cards, even if you do have good credit. Credit card companies make fees on every charge you make even if you pay the bill in full. If fewer people use credit cards then they will have to do something to get customers back
Lita Epstein has written more than 25 books including the "Complete Idiot's Guide to Improving Your Credit Score" and "Surviving a Layoff," due out in January.
Reader Comments (Page 1 of 2)
12-19-2008 @ 9:09PM
Rob said...
I agree that banks will probably increase interest rates and decrease credit lines, though given the current economic conditions it will be hard to say whether this is a result of the economic climate or the coming regulations.
BTW, I have seen the number for losses by banks / credit card issuers estimated at $10 - $12 billion a year because of the regulations.
Rob - http://www.creditcarddebtlaw.com
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12-20-2008 @ 7:29AM
Stuart said...
IF driving less brings down the cost of gas.... how about if no one pays their credit card bills until interest rates go to 5%....
Lets change America....
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12-20-2008 @ 4:11PM
Mark said...
The solution is simple, credit is essential. Be resposible with it and manage it. Teach younger teens how to manage what they have and work the system. You need to have credit to function in this life.
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1-24-2009 @ 6:08PM
ann said...
so true
2-22-2009 @ 7:12AM
DeeTee said...
Easy said!! Noone expected what has hit the economy, now the cc companies are freeking out and taking it out on people who pay their bills and care about their credit just because JOE SMOE doesn't pay his bills or care about his credit we have to bail him out too. So you can be as responsible as you want but we are the ones that have to bail out the irresponsible ones.
12-21-2008 @ 4:56PM
Brady said...
These rules will basically eliminate all 0% balance transfer offers.
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12-22-2008 @ 12:30AM
James Raider said...
The changes on credit card legislation will have absolutely no real impact on consumers and their use of credit cards.
JUST LISTEN TO BERNANKE …
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http://pacificgatepost.blogspot.com/2008/12/bernanke-and-perpetuating-credit-card.html
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Issuers will continue to be abusive of all card holders.
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12-25-2008 @ 5:49AM
itsmycall said...
Bank of America Bailout Mystery?
Check out FL Times Union editorial cartoon (12/24/08)
Well, I just got the results of the use of my part of the infamous bank bailout money. Thank you congress. I received a gracious letter from the Bank of America informing me that they will be more than doubling my finance charges beginning in February 2009 from 12.99% to 27.99% for my BUSINESS VISA card. I have been in business since February 1992 and a Bank of America VISA card holder since November 1993 with a high credit limit of $25,000 which I am nowhere near. They were, of course, very happy to give me an low rate for transfer balance’s just a few month’s ago. I have paid what has been required and I have had no differences in purchasing, and given no real reason by Bob (BofA rep). Of, course Bob could not do anything and does not make these decisions. If I got this notice I am sure many more will. I have never made it a habit of not paying my bills, but this is ridiculous. I am going to protest these greedy b*****’s with the only thing they understand. Maybe a few million would like to join me and get YOUR money back.
MERRY CHRISTMAS ALL!!
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1-04-2009 @ 4:56AM
james said...
i hear ya load and clear
paid off a 15,000 line with a debt consolidation - w/in a month with BANK OF AMERICA the credit line was reduced to 500.00
they stated that the line was reduced because of my outstanding debt with others .... to go from 15,000 to 500.00
what the f_k
they keep raising rates and raising rates - before long theyll want a limb and kidney for collateral
12-25-2008 @ 5:38AM
Kelly said...
Has anyone else had a Credit Card CANCELED because you have not used it for a while? That is what CHASE did to me. When I called them to find out why they told me becasue I had not used my card for 2 years. And it did not expire until 2012. Also was told it made my card exposed to fraud. For not using it. And I had perfect credit with them as with all my other cards. Have never been late always payed way before they are due.I asked them it they would rather have a customer run up more and never pay their bill.Had no answer fo that one.
Kelly
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2-21-2009 @ 8:59AM
jenny said...
Yes Chase cancelled my credit card because of inactivity.I was glad though.
12-25-2008 @ 5:42AM
Lita Epstein said...
Kelly,
Credit card companies are closing unused cards of a lot of people because they want to reduce their risk exposure. They are also lowering people's available balance. Both of these things are happening to people with good credit scores. it's nothing that you or anyone else did.
Lita
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1-02-2009 @ 9:54AM
Scott said...
Credit card debt has gotten way out of hand. There are ways to negotiate that debt down as well thru procedures such as debt settlement.
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1-05-2009 @ 9:25PM
V.A. said...
I agree that credit card debt is out of hand big time. My question would be: if I have someone else's name on my credit card, it is their debt, and they are paying it off through installments (reduced rates); how can I go about taking my name off so that it doesn't hurt my credit rating?
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1-06-2009 @ 3:27PM
David S said...
If you don't have money, You might try bartering with your family, friends , or nieghbors. You know, swapping for whatever you need. Like goods, services, time, space, etc. NO it will Not make you rich. Beware of anyone who says it will. But it may help to stretch your dollars when you don't have money in hand. You don't need a credit card, or money. To read more about it go to your public Library, in the readers guide, in Magazines. That's where I got the idea from. Remember it works only when you have good will between the 2 parties, so don't enter into it thinking of getting over on the person. Finally get it in writing first, and keep in mind some barters are taxable. I hope this helps.
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1-05-2009 @ 9:29PM
Lita Epstein said...
V.A.,
Unfortunately, you probably won't get the credit card company to take your name off the debt. That's why I recommend that you never co-sign for anyone or add them as a user on your credit card. If the account is in your name or you are a co-signer, you are responsible for the debt until it's paid off.
Lita
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1-28-2009 @ 11:38AM
Kathy said...
i just tried to negotiate with Washinton Mutual to reduce my credit card interest rate.. It is 31%. They said they could not help me at this time. What is their interest rate on the money they receive from the government? Where is their help for the common man? Banks get bailed out and they re-do their offices for million dollars or buy jets. All I want to do is try to pay my bills. I am just so tired of everything.
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2-09-2009 @ 11:37PM
brich said...
Sure bail out the banks....Now we are having them screw us with higher interest and higher minimum payments.....I think we should just screw them and not pay till they lower rates.....we have to pay the taxes for the bail out as well......America needs to have our voices heard start talking to everyone and have them voice there opinions as well.......Or are just going to roll over and take it..........Obama better listen and not to just big business who gave him all that money to get elected.
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2-22-2009 @ 7:10AM
DeeTee said...
Well said! I'm thinking bancrupcy and screw them, since they are so quick to screw with our credit rating. I just had GM card lower my limit to withing $100 of the balance so now it looks like my card is maxed out - that goes to the credit bureau and will begin a viscious cycle with my other creditors. Just plain sick of people who say 'be responsibe' 'don't use credit' 'thats just how it is' WELL WE NEED TO STAND UP AND SAY 'SCREW YOU' to them and these companies who are ruining our credit well getting bailed out from the government. WHERES MY BAILOUT?
2-11-2009 @ 12:43AM
Writer43 said...
There are several Web sites that have good advice on dealing with credit cards, including http://www.fool.com and http://www.e-personalfinance.com
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