Monday, February 22nd, 2010
Good news for credit card holders—the final set of provisions under the Credit Card Act of 2009 take effect today, offering some important consumer protections.
For those who use credit cards responsibly, the new laws will provide more time to pay bills and less likelihood for fees, penalties and interest rate changes. For those struggling with credit cards or facing bankruptcy, the laws may prevent fees from adding up and provide a little breathing room.
Here's a look at some of the key provisions that are now in effect:
- Expanded Statements: Your monthly card statement will have a few new features, including broken down fees and penalties and a chart showing how long it will take to pay off the charges making only the minimum payment (and how much it will cost). Your statement will also arrive at least 21 days before the due date, a full week earlier.
- 45 Day Notices: Your credit card issuer must give advance warning of any changes to your account, particularly interest rate changes. This will give you more time to consider the changes, negotiate with the credit card company, or, if necessary, pay off the balance and close the account.
- No Rate Increases for 1 Year: The new law prohibits "arbitrary" rate increases for the first year you hold an account. Lawmakers hope this will curb "universal defaults", in which one card issuer raises interest rates due to late payment on a card issued by a different bank. Some actions could still trigger a rate increase, such as being more than 60 days delinquent.
- Over-Limit Opt-in: You will only be charged over-limit fees if you agree to it. While this may seem like a blessing, it also means more transactions may be declined.
While these changes went into effect, many cardholders have seen changes to their account over the past year, since the law was introduced. Credit card companies have been preparing for the law to go into effect, and in many cases have not been acting in consumers' best interest.
Many credit card companies have been raising interest rates and introducing new annual fess (which are permitted in the new law) in order to prepare for the revenue losses that could come under the Credit CARD Act.
For more information, visit the Federal Reserve's credit card site.
Posted in Bankruptcy and Predatory Lending, Consumer Credit, Credit Card, Credit Cards, Credit and Bankruptcy, Interest Rates | Comments Off
Sunday, December 27th, 2009
The Credit Card Accountability Responsibility and Disclosure (Credit CARD) Act of 2009, which will take full effect in February, limits many practices now common in the credit card industry. Some, however—like issuing a card with an interest rate near 80 percent—will still be permissible under the new law.
Subprime Credit: Still a Bad Idea
The subprime lending boom and the “unconventional” lending techniques that accompanied it were major factors in the housing market’s explosion and collapse, and thus the current recession.
But just because people have grown more wary about some types of subprime lending doesn’t mean it’s disappeared entirely. In fact, according to an MSNBC article, some of the worst credit cards on the market are still as costly as ever.
The First Premier credit card reportedly provides a source of credit for people with limited or shaky credit histories – that is, the so-called subprime borrowers. But, because of the potentially high risks associated with having a blemished credit history, this card comes with some shockingly expensive terms:
- Initial limit of $300: Users of the First Premier card will have access to only $300 in credit when they open their accounts, an increase from the card’s former limit of $250. But that’s not even as much as it seems.
- Maximum permissible fees: The Credit CARD Act prohibits issuers from charging fees that total more than 25 percent of a card’s limit, and the First Premier charges exactly that: $75 in fees each year. Formerly, the first year’s fees totaled $256 – on a $250 limit.
- Astronomical interest rate: Presumably to make up funds lost from the limited fees, the First Premier issuers jacked up the interest rate on their card to a whopping 79.9 percent. The new law sets no limit on credit card interest rates, so while shockingly high, this limit is legal.
Avoid the Trap: Wait It Out
Naturally, getting tangled up with a card that carries a nearly 80 percent interest rate is not a good idea, no matter how badly you want to start rebuilding your credit after a bankruptcy filing or other financial stumbling block.
If you currently have a rough or limited credit history and don’t think you’ll qualify for a credit card with more favorable terms, your best bet may be to simply wait a while. With a few months or years of responsible and timely bill paying, you may qualify for much better credit products.
Additional Resources
Credit CARD Act of 2009 (PDF)
Posted in Credit Card, Credit and Bankruptcy, Interest Rates, subprime lending | Comments Off
