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New Consumer Credit Card Rules Take Effect

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

Protecting Your Best Financial Interests

Part of becoming truly financially responsible and independent involves accepting responsibility for your financial situation. Not only do you have the power to improve your finances, you’re the only person who can (and will) consistently watch out for your rights as a consumer.

This point was driven home once again in this post from CreditBloggers.com, in which the author examines one aspect of banking that people probably don’t realize can cost them serious money.

Understanding Overages

Here's a look at how you could end up losing a couple thousand dollars in a few minutes (without even realizing it):

• You go into your bank to apply for a mortgage loan. A loan officer presents some numbers to you and offers you a loan, which comes with an interest rate that is determined largely by your credit score.
• If you’re lucky, you were offered the lowest interest rate that your credit status qualified you for.
• If you’re unlucky (as many thousands of Americans are), you were offered an interest rate with an "overage"—an interest rate slightly higher than the best rate your credit score allowed.

Why would lenders even offer such loans? Because it can be profitable for them:

• A higher interest rate equals a more profitable loan (because you, the borrower, pay more in interest).
• A more profitable loan is more attractive to investors (because they can collect more money on it).
• The bank gets a higher price for the loan, some of which goes to the loan officer as a reward.

According to the post, issuing loans with overages is fairly common, even at some large, well-established banks, which is why you must act as your own advocate when investigating significant purchases.

Protecting Yourself and Your Money

If you aren’t already monitoring your credit report, consider doing so. At the web site annualcreditreport.com, you can view a free copy of your credit report from each of the Big Three reporting bureaus once per year.

And, if you’re getting ready to apply for a mortgage, you may want to pay to view your actual credit score (visit MyFico.com). To determine what mortgage rate you’re likely to get, do some online research or speak with a financial guru you know before hitting the banks.

Additional Resources

Choosing the Mortgage that’s Right for You (PDF)

Posted in Financial Literacy, Interest Rates, Loans, Mortgage | Comments Off

Eighty Percent Interest on a Credit Card

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