Credit Cards Ė Finally a law for consumers
When it comes to credit cards, there are new rules in effect as of August 2009, and you need to be aware of them. First of all you need to know that these rules although watered down, protect you the consumer, and not the banks. Credit Cards and the new rules would never have been put into effect if the Republicans still controlled the Congress because the banks have made major political contributions to the Republican war chests for years. The act creating these changes is the Credit Card Act of 2009. The real name is the Credit Card Accountability, Responsibility and Disclosure (CARD) Act.
So what are the new rules for credit cards?
- Banks must give you a warning with a minimum of 45 days regarding changes they want to make to your account(s). Prior to the new rule, they had to under the old laws give you only 15 days notification. However if you are in default, than interest-rate increases would go into effect now, and the 15 day rule does not apply.
- Have you noticed that some banks send you a credit card bill, and it seems like itís due immediately? Thatís because they want you to be late. They love that ridiculous late fee, which allows them to screw the consumer over. Well under the new credit card laws, the banks must now give you a minimum of 21 days to pay the bill, before they can serve you up a late fee.
- Prior to this law going into effect, the banks had the right to offer you an opt-out option. It was their right, not yours. Now you have the right to say no to interest-rate increases. You also have the right to cancel your account while you pay off the balance with the old lower interest rates attached. This is a major plus. It means the banks cannot pick your high balance account and target it by telling you that they are going to charge you a higher fee. You can now walk away from the higher interest rates. You must still pay the balance off, but you donít have to accept higher rates. Good for the consumer, and too bad for the banks.
- There are other parts to the credit card bill. Among them are limitations on increases in interest rates. There is also a ban on marketing and issuing new credit cards to young people under the age of majority. In February of 2010, there will be a host of new regulations on gift cards.
- The banks get nailed again in July of 2010 when new requirements come into play once again. This time there will be much more disclosure regarding fees, as well as rates and terms that must be on the monthly statements. There will also be new rules on credit card applications and mailers that you and I are accustomed to getting.
- These new rules are the result of Congressional action in conjunction with regulations set by the Federal Reserve Board, as well as federal banking regulators.
More Vital Points that YOU Need to KNOW!!!
- The way the banks have designed their credit card programs will have to go through a complete overhaul. Itís no different than an army being outfitted for the wrong war. The business models they currently employ are now obsolete.
- In anticipation of the changes above, the banks have already raised rates on their existing cards to beat the timing of the laws. This is because the law now makes these changes very difficult.
- If a consumer rejects changes in the terms of his credit card, the banks in turn cannot ask the consumer to render full payment of the outstanding balance. They canít even charge monthly maintenance fees on accounts closed by consumers due to a change in terms.
- Think what this means for the banks. If they have a credit card holder who they feel is more risky now than 3 months ago, the bank no longer has the right to arbitrarily change the terms of the account.
- All banks are expected to comply with the government imposed deadlines.
- The first bank to implement all aspects of the new Act prior to the deadline is Wells Fargo. They made the changes in July.
- It is expected that banks will now dump the riskiest customers under the new Act. They will no longer be profitable.
- The so called rewards cards will no longer be so rewarding. The banks will have to cut back on these sorts of programs.
- What about the grace period. As you know, when you charge something, if you pay off the balance on the next statement, you are not charged interest. Banks are now considering charging interest on a purchase regardless of whether or not you pay it off on the next statement. This is OUTRAGEOUS.
- The big downside here is probably a tightening of credit card availability and consumers having less access to credit through this vehicle.
- The 80-20 rules applies to credit cards. The top 10 bank credit cards control as much as 90 percent of the credit card market.
- Under normal conditions the default rate on credit cards is about 5%. During a recession like the one we are experiencing, the number could get as high as 10 to 12%. We expect to see a peak in defaults sometime in the second quarter of 2010.
- The new act also provides for due dates and times that make more sense. You canít set an early morning deadline under the new law. A 5PM cutoff on the due date is now illegal as well. If the bank makes the due date a holiday, or a Saturday or Sunday, you canít be subject to a late fee for that.
- For the subprime players among us, you cannot be charged upfront fees if the issuer allows them to exceed 25% of the consumerís available credit limit during the12 months of the cardís life.
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