The new credit card law has been reconciled by both houses of Congress and is on the way to the President for his signature. A look at some of the features and how it will affect you is in order. Keep in mind that full implementation of this legislation does not go into effect until February 2010.
Interest rate caps are out. It was hoped that interest rates would be capped to keep credit card companies from gouging card holders with high usury charges. This is not the case as that has been stripped out of the bill. High interest rates will now take on more significance to credit card companies as their largest source of profit on card accounts.
Interest rates cannot be raised on customers if they are less than 60 days late on payments. And, if payments are made on time for six months, a lower rate paid earlier will be offered. This is an attempt to throttle the skyrocketing jumps in rates by companies which feel that card holders become higher risk with late payments and therefore must be penalized.
New interest rate changes require a 45 day advance notice. This part of the law takes effect in August, 2009. This was the one way that card companies could increase rates with no notice required.
You can no longer be charged for making a payment via phone or Internet. This was implemented as a measure to help encourage people to make payments on their accounts without worry from being hit with yet another fee.
Interest rates increases are frozen during the first year after an account is opened. And, introductory promotional rates have to last six months. Does this spell the end of the 0% introductory offers? That remains to be seen.
Payment due times have been changed. Card companies can no longer set early morning deadlines on the due date for payments to arrive or be considered late. This practice was considered underhanded and ‘nit-picky’ by consumers. Any payment amount that is over the monthly minimum must be applied to the portion of the balance with the higher interest rate. The practice of applying payments to the lower interest portion of a bill was an effort to capitalize on higher interest charges by the card companies.
Double-cycle billing is banned. This occurred when card issuers charged interest on a prior months balance.
Credit card applications for those under age 21 will have to be signed by an adult over 21 and provide for proof of ability to pay. Marketing agreements for college students, between universities and credit card companies will be fully disclosed.
Card companies will also now be required to communicate to card holders the length of time that it will take to pay off a balance and how much interest will accumulate if they only make the minimum payments on the account. The intent here is to show the consumer the amount of money that they are really spending in keeping balances high and by not paying more than just the monthly minimums. Monthly statements will also have to fully disclose the cost of late payment penalties.
Consumer groups hail the legislation as much needed while credit card companies say that the new restrictions will force them to substantially reduce credit to higher risk groups of consumers. The see-saw pull between card companies and card holders will become slowed, but will still be evident after the bill goes into effect.
As always, however, the advice about responsible credit card practices applies. This new legislation helps, but does not remedy problems associated with poor money management practices by consumers.