New laws
The Obama administration is working hard to reform laws for companies who issue credit cards. On May 22, the president signed off on the Credit Card Accountability, Responsibility and Disclosure, or Credit CARD, act of 2009.
The bill is set to improve the way companies deal with consumers and act as a watchdog agency that protects users. Here are some of the benefits of the new law.
Increases are retroactive
Card companies can no longer raise rates on an existing balance unless the customer is 60 or more days past due. There will no longer be “anytime, any reason” clauses that almost every credit company employed in former contracts.
If the cardholder does trigger the default rate, the bank has to be willing to restore the rate if the cardholder maintains six consecutive on-time payments. Rates also can’t be raised the first year after the card is issued and low introductory rates have to last at least six months.
Rate hikes
Lending companies are still able to raise credit card rates, but they have to give consumers 45 days notice before the new rate is effective. This can help consumers to budget more wisely and switch to new credit cards if needed. Currently, notification time is only 15 days.
Gail Scherwood, a consumer in Billings, Montana stated, “The notice we received was dated two weeks prior, but we didn’t get it until four days before the increase. That didn’t seem fair.” This new rule hopes to resolve this issue, and give customers time to react to pending increases.
Fees
Fees are another hot topic with credit cards. Cardholders no longer will face over-limit fees “unless they elect to allow the creditor to approve over limit transactions.” Also, in general banks won’t be able to charge fees to consumers who pay their bills over the phone or online.
The only fee they will be able to tack on is an expediting fee at the consumer’s request. In addition, if cardholders pay at a bank’s branch, the payment must be posted same-day to avoid late fees.
Student credit cards
There are restrictions on students ages 18 to 21. This consumer group has to have:
- An adequate income or a co-signer
- Attended a financial literacy course
If they don’t have both, they won’t be approved for a credit card. This law protects young people who, in the past, were heavy targets for the credit card industry. As a result, many young people were overwhelmed with debt because of the “free” credit cards they were being inundated with. A recent survey showed that the average college student is holding $3,173 in credit card debt. This is a record high since 1998 when the first study was done.
Double-cycle billing is over
Another result of the new credit CARD law is a ban on double-cycle billing. This is when credit card companies base their finance charge on the current and previous balances. This allowed companies to charge interest on debt already paid from the previous month.
Payment allocations
Previously, payments were applied to lower-rate balances first, thus bringing in fees and interest rates on higher balances. Credit card companies are no longer able to do this. The new law requires that any “above minimum payment is applied first to the credit card balance with the highest interest rate.” This could save thousands for consumers.
More time
Finally, consumers will have more time to pay. Card companies must send out statements to consumers 21 days prior to payment due dates. This will give people adequate time to make their payments and adjust their budgets.
Credit CARD
The new law for credit cards should be enacted shortly. It will do a lot to monitor companies’ actions and protect card users. President Obama’s goal was to set in motion a safeguard for credit users, and this law is the first step to reaching that goal.
There are a few things one must keep in mind about no fee balance transfers. First of all, most of these offers only provide a zero percent interest rate on balance transfers, not on purchases. Thus, if you apply for one of these cards, be sure to avoid making new charges on it. Secondly, be sure to make your transfers when you apply, as most no fee balance transfers require you to transfer your balances when you submit your online application. Lastly, since you are not paying interest for a full year, don’t feel rushed to pay off your credit card. Stash your money in a high yield savings account and earn interest on your money until the zero percent interest rate is about to expire. This way, you not only save a few hundred or a few thousand with your 0% balance transfer, you can also earn another four to five percent on your money.
With unemployment skyrocketing, and the credit crisis causing a hike in credit card rates nearly across the table, more and more people are having problems repaying all sorts of debts, from credit cards to mortgages. Those pesky credit cards, with their variable interest rates, seem to trap many, many people into a downward spiral of debts. However, if a person seems to be drowning in debt, the good news is that there are still options in how to reduce credit card debt.