The current financial crisis has made our country reconsider how it manages debt and forces us to consider the initial cause of consumer debt and spending practices.
The Credit CARD Act, recently signed by President Obama, will go into effect on February 22, 2010 and includes several provisions for how to protect the consumer from devious credit card company practices. But how does this act really help the average citizen? And are there any drawbacks that will in fact hurt consumers more?
Benefits:
1. Retroactive rate increases- Rates cannot be raised on an existing balance unless payment is late by 60 days or more. The lower rate must be restored after six consecutive on-time payments.
2. Advance notice of rate increases- consumers will receive a whopping 45 days notice before core contract changes will be made.
3. Fee Restrictions- There will be no over-the-credit-limit fees unless the consumer approves over the limit transactions. Payments made on the due date must be credited as on the due date (no late fees!).
4. Restriction of card issuance to young people- Consumers age 18-21 must either prove they have adequate income or have a co-signer in order to be approved for a credit card.
5. No more double-cycle billing- Companies cannot base finance charges on the current and previous balance.
6. Fairer payment allocation- Above-the-minimum payments must be applied to the credit card balance with the highest interest rate first.
7. More time to pay- Companies must send statements 21 days before they are due.
8. Gift Card Protections- Gift cards will not expire for 5 years. Inactivity fees cannot be added unless the card hasn't been used for 12 months.
Per the site: http://www.bankrate.com/finance/credit-cards/8-major-benefits-of-new-credit-card-law-1.aspx
Drawbacks:
1. Average interest rates will likely increase- Rates have been increased to rebuild capital. Lenders may also cut your credit line to curb risk. Banks may do this more and more now before the acts' provisions take effect and prevent sudden rate hikes.
2. Return of annual fees- Since interest rate hikes will be difficult to implement yet customers will still demand perks, credit card companies will most likely add on annual fees to certain lines like reward cards.
3. Shorter grace periods- Current grace periods are about 20-25 days before interest accrues on purchases. While you will receive your monthly bill earlier than you used to, it does not make the grace period any longer. There may also be instances of cards with a longer grace period also having a larger annual fee.
4. Less juicy rewards programs- Rewards cards will most likely be curbed to avoid cost. Also, some previously free rewards cards may now come with an annual fee.
Per the sites:
http://www.cardratings.com/creditcardnews/
http://blogs.wsj.com/wallet/2009/05/19/what-the-new-credit-card-rules-mean-for-you/
So though this new act may protect many consumers from unmanageable, unyielding debt, the measures that card companies will have to go to to recoup revenue losses could affect those who make wise financial decisions and pay their bills on-time.
The wisest way to stay out of trouble is to continue timely payments, pay in full, and read the fine print when applying for a new card.
Safe and Happy Shopping,
Savvy Student
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