How The New Credit Card Legislation Affects You.
As many of you know, The Credit Card Accountability, Responsibility and Disclosure Act was passed a while back and some of the stuff coming out of it is just plain AWESOME.Not only will it improve a lot of the shadyness going on, but it'll hopefully get the average American back on track and *paying attention* again (see #4). It may also means entirely new fees to watch out for as the credit card issuers fight back, but all in all I'm personally pleased by it. While I promote smart leveraging of credit cards, I know very well of the trouble many people get into when they fall behind and it becomes a downward spiral. So if you're one of them reading this, pay attention and see what we all have to look forward to! Hope is on the way, baby...
Credit Card Legislation: The Good :)
Money Magazine breaks down 13 of the new mandates that affect us (print edition: Aug, pg107) so that people like you and me don't have to. Rather than list them in the same order as they did though, I figured I'd list them in order of the ones I think are MOST IMPORTANT first. Numbers 1-5 are the key ones in my opinion, followed by some others that are great, but not *as* sexy as the previous ones. But again, I pay my credit card off in full every month so it may just be that they don't pertain to me. Let's get started:1. Payments in excess of the minimum owed must first be applied to the balance with the highest interest rate, and then to other balances in descending order. YES!!!! OMG this helps so many people. Even I have fallen for this at times. You have your normal rate set at let's say 6%, and then you withdraw cash @ 18% due to something unexpected and quickly turn around the next day and pay it off "in full". That might be fine and dandy but the old rules say you just paid that XXXX worth of $ towards the 6% instead of the emergency 18%!!! And if you have a large balance already that you can't wipe out? Sucks to be you. But now anytime you pay money it goes to the highest first, and THEN the next lower one in line. A++ politicos. (by Feb 2010)
2. Applicants under age 21 must have an adult co-sign, or show proof of income for approval. DAMN that's genius! Not only does this make the kid think twice, but now it puts more responsibility on the parent :) Again, another A++ for the nation. (by Feb 2010)
3. Issuers can't offer sign-up gifts on or near college campuses. Looks like no one will be getting any free shirts or stress balls anymore! Do you hear that Debt Free Dad of 6? If this were around when you got one of the first credit cards in history things might be better. A+ (by Feb 2010)
4. Issuers must indicate in statements how long it will take to pay off a balance (and the total cost) if you make only minimum payments. WOW. I guess sorta like a mortgage, eh? If this doesn't help educate the average American, I don't know what will. A+ (by Feb 2010)
5. Cardholders assessed a penalty APR for late payment can reclaim the lower rate if they pay on time for six consecutive months. Sexy! So no more "Well I'm screwed now and there's nothing I can do about it"-type mentality. You mess up, you pay the penalties, and you get right back on track 6 months later. I'm all for that. (by Aug 2010)
*****Other Great Ones****
6. Statements must be mailed 21 Days before bill is due (up from the current 14). (by Aug, 09)
7. Issuers have to give 45 days' notice (vs. 15) before increasing interest rates and fees. (by Aug, 09)
8. Issuers can no longer raise rates on an existing balance, unless payment is more than 60 days late or a teaser rate expires. (by Feb 2010)
9. Teaser rates must be in effect for at least six months. (by Feb 2010)
10. Except for expiring teasers, the rate on new purchases can't be hiked in the first year. (by Feb 2010)
11. Over-limit fees can be applied only if a consumer opts in for approval on going over the credit limit. (by Feb 2010)
12. Issuers can no longer practice "universal default" - that is, raise your rates if they learn that you were late on another account. (by Feb 2010)
13. In calculating finance charges, issuers cannot average in daily balances from the previous billing cycle. (by Feb 2010)
Credit Card Legislation: The Bad :(
Okay, so this new legislation is AWESOME in so many ways, but what about the consequences? You better believe the credit card issuers aren't going to just take it up the $%!* and let go of all that money. Instead, Money Mag predicts that we have the following new charges to look forward to:- Late Fees: We may see a rise from $39 (average in '09) up 25% to around $49 in 2010!
- Customer Service Calls: Get the first one free, and then pay $4 for each additional call/month!
- Credit Line Increases: If you call to increase your credit line, you may now face a $35 fee.
- Cash Advance: Perhaps @ 4% with no cap. That cap one will get ya...
- 2nd Card: Need a 2nd card? Pay them $30 extra (instead of nothing right now).
- Paper Statements: Remember how they always want you to "save the Earth" and go electronic? Maybe now they won't be as pushy if they're charging you $4 PER MONTH!
- Credit Card Rates: And finally, they predict average credit card rates to go up to 15.07% by Feb. 2010 - up from an average of %13.76 in June of '09. Boooooooo.
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Related posts you might enjoy:
- It's all About the Credit Cards Baby! 4 Steps to Success...
- I'm all for The Credit Cardholder's Bill of Rights no matter what.
- Top 4 Credit CardIssuer Traps
- Credit Card Roulette - To Play or Not to Play?
Labels: awesomely awesome, credit cards, one of my lists
posted by J. Money at
7:24 AM
26 Comments:
As much as I want to be optimistic and hope some of this legislation helps people, I really have a hard time agreeing that it will do any good whatsoever. The problem with credit card companies is not the card companies themselves, it is the consumers who lack personal responsibility. You made the comment about Debt Free Dad of 6 in relation to card offers on college campuses, and I just don't believe that this would have made any difference. Even if they were illegal on campus he would have got one at the airport, or wal mart, or wherever else someone offered him credit.
My point is not to run anyone down or be Chicken Little, I just don't remember the last time any sort of government legislation has actually done much good. Sure it's illegal to advertise cigarettes to minors now, but the smoking rate has not changed among that targeted demographic (low-income minors) much at all over the last 15 years.
(As a disclaimer, I am not putting down any specific administration. I am a conservative, but not a republican. I think most every politician is a clown who is just trying to stay in office, so please don't think this is a bipartisan comment. I have an irrational fear of that... :) )
I'm glad they finally passed this,for once our house and senate thought of the American people for a change. I for one, won't be using my cards anymore (in fact they are in the freezer in a jar full of water).
J Money,
I have to disagree with you, on two of what you consider awesome changes:
a) Applicants under age 21 must have an adult co-sign, or show proof of income for approval.
b) Issuers can't offer sign-up gifts on or near college campuses
These two items just create a further nanny state, and everything on that list will have HUGE repruccusions some we will not even realize till it is too late.
Money Magazine predicts 15% but what if the average goes to 25%? It isn't impossible, investors are used a certain profit from V, MC, AMEX, what happens if the average needs to go up to reach the level stockholders want? Do you still think these protections are worth it?
Btw I think the universal default option is GREAT but worthless. All the card processor has to say is, "We reviewed your account and credit score (which probably dropped) and we are freezing your credit lines"
J: great post. i'm still not sure how i feel about the act, primarily because of the unknown repercussions. however, i'm with you in that many of the 13 items are great changes.
My Journey: i'm very interested in your response but i'm not sure that i follow completely. even if your (a) and (b) "create a further nanny state" i don't see the harm. i'm interested in what you mean by nanny state? is it a reference to bigger government vs. capitalism? for the most part i'm against big government so i can definitely get with that line of thinking. however, regarding the specific policies that you mentioned, i see them more as protectionism (which is a definition of nanny state as well). if you don't mind, can you elaborate a little more?
My Journey (again): oh, one more thing. i think you're spot on with the universal default. the way i see it, it's one thing to freeze the credit line, but it's a completely different thing to hike the interest rate up XX% because i was late with another company.
The libertarian in me is particularly concerned with "2. Applicants under age 21 must have an adult co-sign, or show proof of income for approval." Regulate the industry if you must, but imposing rules on consumers in the name of protecting them isn't good policy.
What happened to being an adult at 18, with all the privileges and responsibilities that come with it?
I know a lot of people object to the rules for applicants under 21, but I worked at a credit union on a college campus for several years, and it's amazing how much trouble kids can get themselves into for a free t-shirt. I guess I would prefer that parents actually talk to their kids about debt, but since that's definitely NOT happening, I hope this will help some kids avoid early debt. I am a kook who thinks there should be mandatory financial education classes in public schools, though, so I fully expect to get yelled at about this. :)
(I do get that you can't legislate personal responsibility... but wouldn't it be nice if you could? J/K...)
Couple other potential consequences on the bad side:
- Higher transaction fees on purchases outside the U.S. Currently averaging 3% of your purchase, I expect these to go up to at least 4% across the board, with some going to 5%. Card issuers have you over a barrel traveling internationally because it is expensive to deal with money no matter what you choose, so I think this definite.
- Fewer card rewards and more difficulty redeeming them, perhaps even fees if you redeem less than a certain number of points.
- Inactivity fees: Don't use a card you'll be charged a fee yearly.
And of course they'll come up with others.
Adam Jusko
IndexCreditCards.com
I have to be honest here. I think this is nothing more than a warning label they put on detergent bottles to tell someone something they should already know. (Do not swallow poison) Again, personal responsibility goes out the window. With that said I do agree that some of the changes have good intentions, but good intentions do not always turn out positive. I guess I am a little disgusted with the "Save Me Washington" mentality that seems to be dominating our culture.
#2 especially concerns me. So I guess "adults" under the age of 21 will now need a cosigner to enlist in the military as well. They can die for the U.S. but God forbid they decide to sign up for a credit card. Signing up for a credit card is bad, but people should have the choice to make stupid decisions. :) That's how we learn!
Now I feel pretty good knowing that no matter what this bill states, it doesn't affect me. No playing with snakes for me, even if there is a snake handler (the Gov't) close by. Snakes will always find a way to strike their prey. Credit Card companies are not stupid!
Credit Card FREEEEEEEEEEE! :)
I am really interested to see how credit card companies respond to #11 " Over-limit fees can be applied only if a consumer opts in"
What consumer would opt into that? I guess they would if they were promised a lower rate.
Ooooh we've got a lively bunch today! That makes me happy - anytime people get this passionate about something it helps to generate great conversation and possibly new ideas. So thanks for sharing and continue to do so :) My responses so far:
@Mr. Owl - Yeah, I can understand where you're coming from. Odds are this won't make a *HUGE* difference, but a) it's a step in the right direction (in my opinion), and b) if it helps even .001% of the population I'll consider it a win. Sure there are a bunch of dummies signing up and not paying attention to what they're doing, but there are also a lot of smart ones who now may not overlook it as they could have before. I just think trying something here can only move us forward.
@CouponPrincess - You know yourself well, good job :) I still plan on using them to budget & earn rewards, but if freezing them keeps you out of trouble - Amen!
@My Journey - What sort of repercussions do you think might happen? Also not sure what you mean as "nanny state", but it sounds like a good thing to me ;) Yeah average rates could go up to 25% for sure, and in that case people will get burned the first time they mess up, and then I'd like to think learn from it and move on. And if not? The gov't will step in and revise again I'm sure...
@Ms. MoneyChat - Hey, looks like we had the same questions :) Thx for chiming in...
@Matt - GOOD POINT! Hadn't even considered the whole "18 = adult" thing...maybe cigarettes are next (I wouldn't have a problem with it)?
@Jane - I like the way you think. A lot of people would say that more education in schools will do no good, but again *something* is better than nothing in my opinion. There's only so much we could put in place to warn/education consumers without forcing them to act or not act.
@Adam - True, there could be an array of crazy new fees about to hit us in the face - I guess time will only tell...
@Brad @ enemyofdebt - "Signing up for a credit card is bad" Oh boy, here we go again ;) I'll have to disagree with you as always on that one, as well as most of the rest of your comment. For the same reason I stated in previous responses here, I have no problem with items being passed to give even more warning to the general consumer. Wouldn't you want YOUR kids having to ask you for permission to get that c/c first? I'm all for leaning from your mistakes (I've learned plenty that way myself), but I'd think I'd enjoy that last shot at explaining "how things work" to my kids before they jump in.
@Kevin Blakeley - That's the point - most consumers wouldn't ;) Thus a win for the consumer over credit card companies...
We obviously disagree about the role of Government in society. I like small unobtrusive government that allows the people to decide things for themselves. As opposed to the "nanny" state that our Government seems to be in the process of making even bigger today. The nanny state says people are not smart enough to make their own decisions, that the Government must act as the parent to save us from ourselves.
As far as wanting my children to get permission in order to get a credit card, even though they are legally considered an adult, I disagree. For starters, I do not, and will not co-sign for anyone to get a loan or a credit card. Secondly, I plan to educate my children to avoid the perils of debt and bondage by showing them by example, why they should.
Furthermore, you can't learn the lesson needed to be learned from a mistake you were never allowed to make. Successful people fail far more often than unsuccessful people without any help from the Government. There is a reason why that equation produces bigger and better results.
My short answer: Government is NOT the solution! We, the individuals, are the solution, which is why I disagree with the Government trying to save us from ourselves.
Wow, so they will realize charge if your call customer service more than once? Is that per week, per month, or per year?
Does it get added to your statement?
What a mess! I really don't like how that sounds
So basically with all the new fees being added to make up for the benefits of those in debt, anyone who pays off their credit card statements on time are the ones getting shafted. Seems to be the trend these days, the ones who are responsible are the ones getting shafted.
I wonder about #1, that payments go to the highest interest rate balance first. Will that count on existing balances, or does it start only in new situations?
@Brad @ enemyofdebt - I hear ya brotha, we all have our opinions :) I wanna side with you here, but unfortunately we're just not living in a perfect world. If we were, there'd be no need for any bailouts, housing crashes, c/c legislation, unemployment, market crashes, etc. I would love more than anything for people to wake up and pay attention here, but it's just not gonna happen on it's own (in my opinion).
So if it takes someone, or thing, stepping up to try and help smooth things out, I'm all for it - just like when you and I blog and try and spread the good word ourselves - If everyone knew everything, we'd just be blabbering on into the wind w/out anyone caring for it much ;)
@Duddes02 - It's all a guess right now, nothing's certain about the outcome just yet. I'd guess it'll be added onto your statement and then they'd charge you interest on it - but who knows ;)
@supersunken - Yeah, it's possible. But for the most part you're fine unless you're a heaver customer service user and request credit increases all over the place (if any of those actually happen). But you're right, all in all it helps out the more irresponsible ones.
@RainyDaySaver - Not sure to be honest with you, but I'm guessing it'll apply to everything once the effective date hits? I mean, that's what the lawmakers would want - I haven't read the fine print.
I say a gigantic f!@#-you to the 21+ rule. Way to discourage us youngins from building our credit early. I hate these laws-- you can die for the country, destroy your soul with porn, inhale carcinogens but you can't have a beer (and now have an emergency credit card) without special permission. Gigantic f!@#-you politicos.
I'm all for helping out the American public, but credit card companies will always find a way to pull one over on those who don't watch carefully enough. It should not be the government's job to legislate common sense and fair business practices. Failure of our government/economy/businesses much?
Sorry, I suppose I just have a bad taste in my mouth. This laissez-faire girl has a hard time with the government these days.
LOL - I just noticed you gave me a shout out towards the bottom. Don't know how I missed that the first time. Working on putting together millionaire club goals for post tomorrow man! :)
I don't like this bill. I too felt bamboozled by Bank of America when I learned my payments would be applied to the balance with the lowest interest rate first. When they refused to waive a $39 late fee, I was livid. Especially since it was only my second time paying them late during our 9 year relationship. (The first time I was only one day late.)
From my experiences with credit cards, I learned to never carry a balance, to pay my bill on time, to stay within my credit limit, and to read the fine print.
You'd think the credit card companies' sneaky tactics would lead to a massive reduction in customers. If we feel like we're being mistreated, then why haven't we ceased doing business with these crooks. Why are we so desperate for this abuse?
The only part of this bill I can applaud is "Issuers must indicate in statements how long it will take to pay off a balance (and the total cost) if you make only minimum payments."
I feel like the government's meddling will end up costing those of us who manage our credit wisely more money in the long run.
I totally agree with supersunken and Shawanda. I'm sick and tired of bailing out all the criminals and irresponsible losers out there. When I voted for Obama for change this is not what I had expected. Just more of the same government bailing out their bosses in corporate America and creating such a socialist state that I feel all that I do to better myself makes no difference compared to those who know how to work the system. Sometimes I wish I could max out my cards, max out a HELOC, and declare bankruptcy to join the criminals and irresponsible with a bailout. Guess I'm just jealous. Sorry for the rant... Great website J. Money :)
@Kaitlyn - Hey, you're on a blog that's what you're supposed to do ;) I love some passionate debate!
@Brad @ enemyofdebt - It's all good my man, even more interesting that you re-read it! Def. looking forward to that millionaire to-do post of yours, I'll link back when you've got it up.
@Shawanda - "Why are we so desperate for this abuse?" because people are either too lazy to care or they just don't pay attention. Or worst case - they have no choice but to use them to survive (not everyone's as fortunate as most of us are). The best way to remain unaffected is by doing exactly what you said - pay your bill on time, read the print, and don't carry over balances! This is all you had to do in the beginning too when all this stuff came out ;)
@Stacking Cash - Haha....again - passion is great!!! I know it sucks when people f'ing up get helped more than the rest of us, but to be honest it's MUCH better on our side of the fence anyways. Less debt, less headache - less STRESS! Sure we don't have the cars and the bling that maxed out lines of credit gets you, but we'll have the money in the bank and the freedom to do whatever we please down the line - regardless of anyone else.
I love the age limit rule. I got my first credit card when I was 17...yeah, they didn't really check up on those things. That was the beginning of my stupid love of debt.
Oddly enough I *just* got an email over from the guys at CreditKarma.com talking about this "Under 21" piece. They make some interesting points that some of you would enjoy :) And I admit that first one strikes home as I'm all about gaining good credit early on - hadn't even thought of it:
"Prepaid cards or secured credit cards will become the card of choice for people under 21 years of age; thereby reducing their ability to build a credit history.
Having mom or dad co-sign won't teach teens to be financially responsible. As long as they have mom or dad bailing them out should they get into financial trouble, they won't learn how to use credit responsibly
This legislation could lower parents' credit scores. By co-signing for their teenager to get a credit card, parents will be responsible for any charges their teen makes and this could have a devastating impact on their credit score."
The Under 21 have a co-signer thing is ridiculous to me. At 18 years old, parents are no longer legally responsible for their children. They are considered adults who can join the military without permission from mom and dad but can't get a credit card? Ridiculous.
A better way to keep 18-21 year olds from getting credit cards they shouldn't have is to actually check the applicants employment and income history, which they should do for EVERY applicant, not just for under 21 applicants.
I know this does not apply to car or house loans, but if an eighteen year old can buy a house and a car without mommy or daddy having to cosign, why in the world do they need them for a credit card?
Of course, I am also ticked about how parents income is used to determine financial aid for college on students who are 18-22. They are now adults and there is no requirement for parents to pay for higher education but the government uses their income to determine how much aid a student can receive? Totally ridiculous.
i only like 3 of the 13 points....but what if u decide NOT to accept a card's new terms? you'll close the account right, which then lowers your credit score! even more so if you close it with a balance still on the card! lose-lose there...
well, as much as I understand the positive things about the new CARD legislation, for some of us it is really bad. I have an a credit card where I keep two balances, one for 2.99% APR for life and one for 1.99% till May 2010. I have done because of the old rules and it was very convenient, I've been paying so that the lowest one will be gone by May and all I have to do is take the time to pay off the higher one. And what now? I am screwed, because if I don't pay the lower one off by February 13, staring June I'll be paying 14% APR on it! This legislation should have been passed differently, may be be optional at first or something. After all, what am I being punished for?
I'll agree that I got way too excited at first about this stuff ;) There are certainly things coming to light now that it's becoming more "real," despite the intentions behind it.
The best thing any of us can do is continue chipping away on those cards and limit future debt - as much as possible. I haven't heard of any really GOOD cards out there yet trying to win over customers during this new change, but I bet we'll see some popping up soon. I can't imagine ALL c/c companies screwing with us.
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