The rules for credit cards will soon change. The Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 (such a clever acronym) is set and ready to go into effect in 2010.
How will this affect you? Well, according to an article in today’s Washington Post, the main things are that it will:
- Lead to the return of annual fees on credit cards.
- Lead to fewer incentive programs such as frequent flyer miles.
- Make things tougher for the poor credit card companies like Capital One, which “relies more than most other issuers on late fees for revenue.” (The article also notes that “the legislation could help Capital One by placing new limits on “teaser rates” and deals on balance transfers, which are used more widely by Capital One’s competitors.”)
While I don’t think we need to lose any sleep worrying about whether the credit card companies have enough money, the return of annual fees is of some concern and something to factor into your budget in the future.
Why does all of this mean that annual fees will return? It’s important to understand that all the tricks and gimmicks that credit card companies have been using to get extra payments out of people are being cut off. The money they made from those tricks and gimmicks, which came primarily from lower and middle income customers, was essentially providing a subsidy that allowed them to avoid charging late fees to higher income customers. In other words, they were stealing from the poor to give to the rich.
While it may feel initially unpleasant to pay an annual fee on your credit card, on the whole it will lead to more sensible and rational decision-making by consumers, and will probably save a lot of people money who otherwise would end up making endless inflated payments to credit card companies.
In fact, there’s an interesting article in The Telegraph Herald out in Dubuque, Iowa, which I think is indicative of how people in general are shifting their use of credit in general. According to the an interview with the Senior Vice-President of consumer lending at a local credit union, one of the unintended consequences of the CARD Act are that people are just paying greater attention to their credit card use and finances in general, and just being more careful.
In general, under the new laws, some good tips for choosing a credit card include:
- Read the fine print regarding any changes or disclosures regarding your credit card account and don’t hesitate to contact your credit card issuer or local financial institution with questions.
- Question any unexplained finance charges or fees that may appear on your statement.
- Shop around for lower rates and require fewer or reduced fees on cards.
And see below for a run-down of the key points in the CARD Act:
- Prohibits retroactive interest rate hikes on existing balances.
- Prohibits double-cycle billing (charging interest twice for balances paid on time).
- Prohibits due-date gimmicks.
- Requires 45 days’ advance notice of interest rate, fees and finance-charge hikes.
- Requires payments to be applied fairly to the highest interest rate balance first.
- Requires bills to be mailed 21 days before they are due.
- No one under 21 may sign up for a credit card without a co-signer.
While these are good preventative measures, if you’re in New York City or Suffolk County, Long Island and already struggling with debt–credit card, mortgage, medical bills or any other kinds of debt–get in touch. We’ll provide a free initial consultation and help you figure out all of your options.
Go to Bankruptcy Attorney Brooklyn NY to learn more about Rosenberg Musso & Weiner LLP and/or to set up a free consultation.
