The new credit card rules that affect your money management planning are supposed to protect you. But do they?
No doubt, the days of easy credit are long gone, along with very low introductory rates for extended periods, no annual fees, and high credit limits for just about anyone who wanted a credit card.
Let’s look at what is coming with the new credit card rules
Effective February 22, 2010 the Credit Card Act of 2009 (Credit Card Accountability Responsibility and Disclosure Act of 2009) goes into effect. Quite a few of the changes protect the consumer, for example:
1 – Your card company has to notify you at least 45 days in advance of any modification they intend to make in your account, like raising the interest rate you pay, changing certain fees like late fees or annual fees. However, there are situation where they do NOT have to notify you in advance.
2 – They can only increase the interest rates on new charges, while the existing charges have to remain at the old interest rate.
3 – They have to get you your credit card bill a minimum of 21 days before the payment is due so you have time to make the payment without being late and getting dinged for a late fee or triggering other unpleasant events.
4 – The card company can only charge interest charges on balances in the current billing cycle; no more double-cycle billing.
5 - Protect consumers who are under the age of 21 by making them show that they are able to make payments, or require that they have a co-signer, in order to open a credit card account.
The New Laws Will Also Hurt Consumers …
While, the new legislation prohibits a variety of credit card billing practices, the banking industry stands to lose as much as $50 billion in lost revenue as a result of the new restrictions.
There is little doubt that they will take action to make up for these losses. In fact, the issuers of credit cards are taking action now to implement changes before the new law goes into effect that will cost the consumer more. They are:
Don’t be surprised when your card company raises your interest rate and lowers your credit limit.
1 - Raising annual interest rates on current balances,
2 - Lowering credit card limits,
3 - Changing from fixed interest rates to variable rates,
4 - Stopping the low promotional rates campaigns, and
5 – Starting to punish consumers who don’t get their statement on-line by charging a fee for mailing you a paper statement.
There is a lot more information you can learn from this website Federal Reserve’s consumer information site that explains the new credit card rules in-depth.
Have your credit card companies made any of these changes on your cards? Leave a comment…
February 2nd, 2010 - 6:07 am
Thanks for taking the time to discuss this, I feel strongly about it and love learning more on this topic. If possible, as you gain expertise, would you mind updating your blog with more information? It is extremely helpful for me.
February 2nd, 2010 - 3:24 pm
These new credit card rules will hurt consumers more than to safeguard them. Charging consumer for a paper statement when he is paying such high interest rates. This is really cruel and of no help to anyone.
February 2nd, 2010 - 5:07 pm
I agree, it’s definitely designed to squeeze more money out of the consumer on top of the insulting interest rates. Best money management advice is don’t use credit cards unless you can pay them off when the statement arrives, and get your statements on-line.
February 2nd, 2010 - 5:13 pm
Thanks…more good money management information is on the way.
February 8th, 2010 - 11:19 pm
Oh My God, I don’t know how I missed this blog. Really informative, and some articles written here are really good. Hats off..
February 9th, 2010 - 9:30 pm
The problem with the rules, speaking from an issuer standpoint, is that the ones who will be hurt are customers who do not have excellent credit and great earning capacity. Why would an issuer risk lending to a lower score customer (even one who is building credit) when they can’t raise interest rates for 105 days after the consumer misses a payment? They won’t. I predict there will be a new generation of haves and have nots. The haves will get credit. The have nots better save their cash.
There are also new provisions that mandate an issuer to validate a consumer customer’s ability to pay. So the problem as I see it comes into play for a small business owner who does his or her best to minimize income by plowing it all back into the business. These new laws make it impossible for an issuer to override ability-to-pay qualification standards.
Some of these so-called protections will result in negative impact to consumers. My bank has never been an issuer that has taken advantage of customers by playing games with their rates or imposing excessive late fees. We used to be able to differentiate ourselves on our excellent customer service. We’ll do our best to continue providing great service, but the laws will restrict us in some ways. No temporary increases for customers who are stranded, no increases unless income qualifies.
February 9th, 2010 - 10:21 pm
Nancy, You make some good points.
I agree that a credit issuer should not want to lend to someone who has less than excellent credit and an excellent ability to pay. I think that is actually a good thing for consumers, because if they can’t pay, they shouldn’t be buying on credit anyway. That’s what got the U.S. citizens in their current crisis situation where they are now scrambling to try to do debt consolidations and settlements. Many card issuers extended credit when they should not have for the sake of profits. I also agree that some of the so-called protections will hurt consumers, but that is par for the course when the government tries to take over more of our free market system and run things. They end up hurting our economy.
If someone is working on being debt free [and they should be], they don’t even need to be concerned about their credit rating at all, because they should not be planning on using credit in the future once they get the debt paid off. My mortgage broker friends tell me the only way someone who wants a mortgage can qualify these days is to either have an excellent credit rating or no credit rating at all.
It’s great that your bank is more concerned about good customer service than playing games with consumers’ credit card interest rates and excessive late fees. My current bank is the same way, and I fired my last bank and switched years ago due to their lousy customer service and excessive fees for everything they could think of. I intentionally have not opted out of getting the “you have been approved” credit card invitations in the mail so I can keep my readers informed of the latest games the credit card companies have devised to hook consumers in.
While some business owners may try to minimize profits for tax reasons, I find that most business owners plow the money back into their businesses to maximize income potential. I certainly do. I could let thousands of dollars sit in my business savings account and pay taxes on it, or I could spend it on having the next foreign language translation of my software product programmed. I choose to pay for the software programming so I can sell more software by expanding into a new foreign market so my business can make more money down the road. That keeps my programmer employed, keeps more sales income flowing into my bank account and lessens my tax bill – a win for everyone except the IRS.
February 9th, 2010 - 10:24 pm
Thanks Andrew. Glad you found us, and I hope you will visit often.
February 10th, 2010 - 2:14 pm
This is a great post.
February 11th, 2010 - 7:04 pm
Excellent post, couldn’t agree more
February 13th, 2010 - 10:28 am
Hi Sandra. I just wanted to say thank you for all the helpful information you give out. It has come to the point where so many people do not care enough to help others, credit card companies being worse than all. It seems like they have forgotten if it were not for their customers they wouldn’t make any money at all.
February 13th, 2010 - 12:03 pm
You’re very welcome Charlotte. We ARE all about helping people solve their money management problems. While credit card companies do offer a good service for some, and of course they are in the business of making a profit like the rest of us in the free market, they do go over-the-top on allowing consumers to get into deeper debt than they can afford to pay. That’s an ethics outpoint in my book.
February 17th, 2010 - 5:27 pm
the fed like everyone else is confident the depression in the US is getting worse by the day!
March 2nd, 2010 - 12:09 am
Great discussion on the new credit card rules. The sad thing is that Credit Card companies have been praying on the financially illiterate for years and will continue to do so. I like websites like yours because it helps in educating people about money management. Kudos to you. Too many people no hardly anything about money management. The problems our society is encountering with debt and credit cards are just symptoms to a bigger problem in society, financial illiteracy. I do believe the internet is changing this in America as more people are leaning good money management skills as well as people like Dave Ramsey. Keep up the good work and maybe one day the root of the problem can be fixed.