June 11, 2009 - 5:00am
The Credit Card Bill of Rights signed recently by President Barack Obama is a huge step toward protecting credit cardholder rights. The new provisions will help a lot of American families breathe a little easier in these tough economical times.
However, while the law protects consumers from numerous unexpected charges, it also contains some bad unintended consequences. Many experts believe that the Credit Card Bill of Rights will undermine the availability of credit and trigger new fees.
These days the protective credit card law is a pressing need. Trying to prevent possible financial losses, banks often raise interest rates or even cancel credit cards when they see any reason to do it. It becomes increasingly difficult to manage your finances when terms are changing, interest rates are rising, and new fees are added to your account balance each month.
The new law is intended to make credit companies play fair and protect cardholders against sneaky and unfair billing tactics when they choose to use credit cards. It requires expanded and clearer disclosure of card terms and creates new rules about when creditors can increase annual interest rates on existing balances. Most of the provisions go into effect February 22, 2010, unless otherwise stated.
13 benefits of a new law
1. Limits on sudden APR increases. Creditors can't raise interest rates on an existing balance unless you are more than 60 days late on your account. They can only increase your APR on purchases you will make after that.
If your interest rate has been raised because of a 60-day delinquency, the banks are required to restore the original APR after you pay on time for 6 months. Interest rates can't be increased within the first 12 months of opening up an account.
2. Introductory interest rates. Forget about “the length of the promotional period depends on your credit history and other factors”. If you qualify for a zero APR credit card, you can take advantage of the interest-free period at least 6 months from the beginning date of that promotion.
3. Provide advance notice of APR hikes. Credit card issuers must notify consumers of key contract changes, including APR increases, at least 45 days in advance. This provision will go into effect within Aug. 20, 2009. However, keep in mind that this rule doesn’t apply to credit limit changes. If your lender reduces your credit line, they don’t need to send a notification.
4. More time to pay bills. Credit card issuers must mail out billing statements no less than 21 days before the due date.
5. Due dates. Payments received by 5:00 pm on the due date must be considered on-time. If the issuer does not receive or accept payments by mail on the payment due date (including weekends and holidays), they may not treat a payment received on the next business day as late.
6. Provide advance notice of account closure. Creditors need to provide a 30-day advance notice of an account closure.
7. Overlimit fee restrictions. Credit companies cannot charge overlimit fees unless the borrower approves a transaction that would exceed his or her credit limit.
8. Payment method. Banks can't impose a fee related to the method of payment (mail, phone, electronic transfer, etc). However, they can charge a fee to expedite a payment. If the cardholder makes a payment at a local branch, it must be credited the same day.
9. Fair allocation of payments. There are many credit cards that come with several different interest rates. For example, you can have a 6% APR on balance transfers and a 12% APR on purchases.
Typically, the least expensive credit card debt (such as a balance transfer) is paid off first. You carry more expensive debts on your credit card for a longer period of time, so you pay more interest. Under the new law, credit companies will apply your above-the-minimum payments toward the highest-rate portion of the balance first.
10. Eliminates universal default clause. Credit companies can no longer apply a new higher APR to your account for late payments on any other unrelated accounts. This practice is known as universal default.
11. Restricts student credit. Credit companies will not issue credit cards to people under the age of 21 unless they can prove that they have the means to repay the debt, or a co-signer.
Students account limits should not be over 20% of their annual income or $500, whichever is greater. This provision protects college-age people who don't have sufficient money management skills and experience.
12. No double-billing cycles. The new law prohibits double-cycle billing. This way of computing finance charges involves considering the current balance on the credit card as well as the average daily balance from the previous billing period.
13. Minimum payments. Cardholders will be given clear disclosure that show the total cost, including interest payments, of making only monthly minimum payments on their credit card balance.
A fly in the champagne
As you see, the new credit card law is targeted at leveling the rights of credit companies and consumers. It will protect Americans from unexpected charges such as overlimit fees and costs for paying a bill by phone. But there will be losers too.
Keep in mind that credit card issuers are commercial institutions, not charities. They will need to cover the financial losses somewhere. To make a profit, issuers can, and likely will, make a host of changes not addressed by the legislation. The Credit Card Bill of Rights sets no price control, interest rate caps or fixed fees.
Some experts claim that benefits for cardholders who pay in a timely manner and therefore don't generate enough fees and penalties will vanish. Credit companies will no longer be able to offer them perks such as zero introductory interest rates and lucrative rewards programs.
Consumers who pay off their balance in full each billing cycle could see higher annual fees and jettisoning grace periods. They may shrink from their 20-day average and eventually disappear. It means that interest would accrue as soon as you made a purchase.
Since there is no cap on interest rates, banks may offer credit cards with higher APRs. They can also triple your existing APR for the future purchases if they notify you about this change to account terms in advance.
In addition, it will be more difficult to qualify for a credit card. It especially concerns people who have no or limited credit score. Since the new legislation will limit banks’ ability to re-price consumers’ accounts based on their level of risk, they can choose to deny applications from such consumers.
The experts say that anyone with a credit card will feel the effects of the new law. For now, when it is still unclear how the credit companies will exactly respond and adapt to these new rules, it makes sense to keep your balances low and spend rewards points. And pay attention to all correspondence from your creditors!
However, while the law protects consumers from numerous unexpected charges, it also contains some bad unintended consequences. Many experts believe that the Credit Card Bill of Rights will undermine the availability of credit and trigger new fees.
These days the protective credit card law is a pressing need. Trying to prevent possible financial losses, banks often raise interest rates or even cancel credit cards when they see any reason to do it. It becomes increasingly difficult to manage your finances when terms are changing, interest rates are rising, and new fees are added to your account balance each month.
The new law is intended to make credit companies play fair and protect cardholders against sneaky and unfair billing tactics when they choose to use credit cards. It requires expanded and clearer disclosure of card terms and creates new rules about when creditors can increase annual interest rates on existing balances. Most of the provisions go into effect February 22, 2010, unless otherwise stated.
13 benefits of a new law
1. Limits on sudden APR increases. Creditors can't raise interest rates on an existing balance unless you are more than 60 days late on your account. They can only increase your APR on purchases you will make after that.
If your interest rate has been raised because of a 60-day delinquency, the banks are required to restore the original APR after you pay on time for 6 months. Interest rates can't be increased within the first 12 months of opening up an account.
2. Introductory interest rates. Forget about “the length of the promotional period depends on your credit history and other factors”. If you qualify for a zero APR credit card, you can take advantage of the interest-free period at least 6 months from the beginning date of that promotion.
3. Provide advance notice of APR hikes. Credit card issuers must notify consumers of key contract changes, including APR increases, at least 45 days in advance. This provision will go into effect within Aug. 20, 2009. However, keep in mind that this rule doesn’t apply to credit limit changes. If your lender reduces your credit line, they don’t need to send a notification.
4. More time to pay bills. Credit card issuers must mail out billing statements no less than 21 days before the due date.
5. Due dates. Payments received by 5:00 pm on the due date must be considered on-time. If the issuer does not receive or accept payments by mail on the payment due date (including weekends and holidays), they may not treat a payment received on the next business day as late.
6. Provide advance notice of account closure. Creditors need to provide a 30-day advance notice of an account closure.
7. Overlimit fee restrictions. Credit companies cannot charge overlimit fees unless the borrower approves a transaction that would exceed his or her credit limit.
8. Payment method. Banks can't impose a fee related to the method of payment (mail, phone, electronic transfer, etc). However, they can charge a fee to expedite a payment. If the cardholder makes a payment at a local branch, it must be credited the same day.
9. Fair allocation of payments. There are many credit cards that come with several different interest rates. For example, you can have a 6% APR on balance transfers and a 12% APR on purchases.
Typically, the least expensive credit card debt (such as a balance transfer) is paid off first. You carry more expensive debts on your credit card for a longer period of time, so you pay more interest. Under the new law, credit companies will apply your above-the-minimum payments toward the highest-rate portion of the balance first.
10. Eliminates universal default clause. Credit companies can no longer apply a new higher APR to your account for late payments on any other unrelated accounts. This practice is known as universal default.
11. Restricts student credit. Credit companies will not issue credit cards to people under the age of 21 unless they can prove that they have the means to repay the debt, or a co-signer.
Students account limits should not be over 20% of their annual income or $500, whichever is greater. This provision protects college-age people who don't have sufficient money management skills and experience.
12. No double-billing cycles. The new law prohibits double-cycle billing. This way of computing finance charges involves considering the current balance on the credit card as well as the average daily balance from the previous billing period.
13. Minimum payments. Cardholders will be given clear disclosure that show the total cost, including interest payments, of making only monthly minimum payments on their credit card balance.
A fly in the champagne
As you see, the new credit card law is targeted at leveling the rights of credit companies and consumers. It will protect Americans from unexpected charges such as overlimit fees and costs for paying a bill by phone. But there will be losers too.
Keep in mind that credit card issuers are commercial institutions, not charities. They will need to cover the financial losses somewhere. To make a profit, issuers can, and likely will, make a host of changes not addressed by the legislation. The Credit Card Bill of Rights sets no price control, interest rate caps or fixed fees.
Some experts claim that benefits for cardholders who pay in a timely manner and therefore don't generate enough fees and penalties will vanish. Credit companies will no longer be able to offer them perks such as zero introductory interest rates and lucrative rewards programs.
Consumers who pay off their balance in full each billing cycle could see higher annual fees and jettisoning grace periods. They may shrink from their 20-day average and eventually disappear. It means that interest would accrue as soon as you made a purchase.
Since there is no cap on interest rates, banks may offer credit cards with higher APRs. They can also triple your existing APR for the future purchases if they notify you about this change to account terms in advance.
In addition, it will be more difficult to qualify for a credit card. It especially concerns people who have no or limited credit score. Since the new legislation will limit banks’ ability to re-price consumers’ accounts based on their level of risk, they can choose to deny applications from such consumers.
The experts say that anyone with a credit card will feel the effects of the new law. For now, when it is still unclear how the credit companies will exactly respond and adapt to these new rules, it makes sense to keep your balances low and spend rewards points. And pay attention to all correspondence from your creditors!
Comments
New law for credit card . Know more to get benefits. People should read this.
http://www.askaboutcreditcard.com
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