New credit card laws take effect, but higher rates plague consumers
Filed under: Economy
When the new credit card laws officially start today, millions of Americans will see a host of improvements on their accounts; unfortunately, many have already begun to see higher interest rates. Anticipating the changes, many credit card companies have spent the last few months rushing to raise raise rates before the first changes take effect.In the past few months, credit card companies have been racing to raise interest rates on millions of credit card holders. People with cards from American Express (AXP), JP Morgan Chase (JPM), Citigroup (C), Discover (DFS), Capital One (COF) and others have been reporting increases even if they've never made a late payment and have excellent credit scores. At this point, it looks like all cardholders who carry balances from month to month will see their credit card costs increase.
Starting today, credit card issuers must mail bills 21 days -- rather than 14 days -- in advance and they must give customers 45 days notice before raising interest rates. Before this provision in the Credit Card Accountability Responsibility and Disclosure Act (CARD) took effect, credit card companies only had to give a 15-day notice of a rate increase.
In the past, by the time cardholders learned of a rate increase, there often wasn't much time to protest. Even if they chose to do so, they only had two options: paying off the account or locking in the current rate by agreeing to close the account. For many struggling to meet bills after a job loss or other emergency, neither of these options were viable.
Another change has been in minimum payments. JP Morgan Chase just changed the rules on people carrying balances of $5,000 or more. Rather than being required to pay 2.5 percent of their balances each month, cardholders must now pay five percent.
For people who have lost their jobs, rapid interest rate increases and minimum payment changes put even more strain on their budget and will push them even faster toward bankruptcy. Individual bankruptcies are up 36 percent as of April 2009 versus April 2008.
Unsurprisingly, these credit card changes have accelerated cardholder default rates. Bank of America reports the highest default rate at 13.8 percent. Others, including Chase, Citigroup, Capital One, Discover and American Express report default rates between 8 percent and 10 percent.
Many credit card issuers are getting rid of fixed rate cards completely and instead offering variable rate cards set to an index. That way they don't have to send notices at all. As the index rate goes up, so does the credit card rate. This method enables them to avoid the protections in the new law.
Now that the first changes have gone into effect, credit card companies are looking for ways to avoid the law changes that take effect in February 2010. These include:
* A ban on marketing to students under age 21 unless their parent co-signs or the credit card company has proof that the student earns enough money to pay the bill.
* If there is a an interest rate hike, it cannot be applied to an existing balance.
* If a card has balances at a variety of rates, payment must apply to the portion with the highest rate first.
* Many credit card companies charge fees if users go over their limits. Under the new law, card companies must allow customers to opt out of this practice.
* Double cycle billing will be banned. This is a practice by which credit card companies would use their customers' average daily balance from the current and previous month to calculate finance charges.
Changes to gift cards will take effect next summer. One change will be that gift cards must be good for at least five years; right now many expire after one year or less. Also, there will be limits on the fees that can be charged on dormant or inactive gift cards.
Also, as the credit companies' latest account changes demonstrate, cardholders can expect to see more fees added on to their accounts. For example, some cards are starting to charge a fee to reinstate rewards points if customers are late on a bill, and it seems likely that they'll find other fee innovations before the new law takes effect in February 2010.
While CARD my help some consumers, it would have been far more useful if its provisions were enforced immediately upon passage. When it gave the credit card companies so much lead time, Congress also gave them the opportunity to figure out ways around the changes before the bill took effect. Ultimately, with higher fees and interest rates pushing more customers in default, everyone loses -- including the credit companies.
Lita Epstein has written more than 25 books including "The Complete Idiot's Guide to Improving Your Credit Score."
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Reader Comments (Page 1 of 4)
8-20-2009 @ 10:22AM
SenatorDudd said...
Thanks to Senator Dudd we will be paying higher interest rates on our credit cards.
Reply
8-20-2009 @ 3:49PM
James said...
Try paying your bills on time and you won't have to pay any interest. Better yet, throw your credit card away if can't control your spending.
Does the greed come from the credit card companies or from those who want the latest LCD Flat screen T.V. but can't afford it so they charge it on their credit card.
You want the government to be responsible with their spending, try being responsible with your own spending.
8-20-2009 @ 10:22AM
07 Shelby said...
These credit card companies act no different than thieves, they are always dreaming up ways how to screw you out of your money. All becuase they want their big fat bonuses at the end of the year and have no guilt on how many people they hurt. The only reason congress didn't put the law into effect sooner, congress is in the pocket of the banking industry. This amounts to congress taking bribes from banks. After all, how many lawyers would take a pay cut to be in congress if they weren't planning on getting compensated from somewhere that exceeds what they made in private practice. They are all crooked SOB's and they can't be trusted to protect the interest of the average citizen!
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8-20-2009 @ 4:35PM
Art said...
Shelby stop spending above what you can pay off you have the stuff now they want there money
8-20-2009 @ 10:37AM
loretta said...
Does anyone actually believe that greed can be legislated away? The idea of doing the right thing, instead of the thing that is easiest is still lost on American business.........and that very principle of holding profit over ethics is what got us in to this mess. The consumer has but one defense, stop spending. However, in a Pavlovian response that has taken decades to develop in the American psyche, when the American consumer sees an ad, or smells a mall, they immediately take out their wallet. That addiction is as lethal as any drug ever concocted by a third world nation.................just look in your own closet.
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8-20-2009 @ 10:42AM
bailoutsos said...
"Congress gave the credit card companies so much lead time" ---- Of course, that is what all the companies that donate millions to congressional campaigns wanted.
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8-28-2009 @ 5:00PM
Arlene said...
You are so right!!! As usual this is political, and the American people have no choice. The politicans can do whatever they want and we pay the price! Why do we even have a vote when the politicans end up doing whatever is best for THEM, not the constituents!!!!
8-20-2009 @ 10:47AM
Chuck said...
This whole thing is caused by government taking care of people who don't take care of themselves. Those that get the shaft are the people who have kept themselves current and don't keep looking for the government to take care of them. Thanks to those who think government is their pay check we all will have to pay more for everything.
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8-20-2009 @ 11:03AM
Darrell said...
oh how liberals love their causes,except one that is,and it ALWAYS happens to them,the law of unintended consequenses which is where they always screw the pooch. just like the health care BS,just another liberal(progressive) welfare program that destroys what they touch.
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8-20-2009 @ 11:31AM
stan said...
Credit cards are no different than loan sharks except they are legal. Money people know that the average Joe in the street lives above his or her means. Those same money people being the bankers have manipulated the system to line their pockets. The idea of a credit card was to help the nation go paperless. Its developed into a way to get deeply into the average Joe's pocket. If you are one of the millions that owe more than 10K and only make 40K a year, and cna only pay the minimum payment good luck. The credit card companies take more than taxes. Pay the minimum of 3% and you will take 25years to pay off and pay double the principal in interest only. thats why the credit car companies love the system
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8-20-2009 @ 11:33AM
Walter said...
Crooks, Crooks, Crooks...Thieves, Thieves, Thieves and congress made it legal!
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8-21-2009 @ 6:14PM
Evelyn said...
If people would just live within their means and pay off their credit card bill each month they wouldn't OWE any interest. Using a credit card as if it is another source of income is stupid beyond stupid, unless it is a medical emergency!
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8-20-2009 @ 12:35PM
gth0579 said...
Oh Evelyn - so simple-minded - a huge number of us pay our cards on time and we use the card only for emergencies - like getting our auto repaired so that we can get back to work, or having to buy a new fridge because all our food is going to spoil, or the a/c died and our elderly parents need a/c; it's those emergencies that get us in trouble - especially when the interest rates go through the roof. An unexpected lay-off from a job held for 15 years, etc.
8-20-2009 @ 11:59AM
Glenn said...
This bill is a joke. By allowing the card companies to raise the minimum payment due from 2% to 5% of the balance they have made it virtually impossible for many card holders to stay current on the reduced offers the banks made at much lower rates with the provision that those rates would stay the same until the balance was paid in full. If one can't make the new payment schedule then the card will go into default and the interest rate rises to as much s 31% !!! Thus the banks have been allowed to BACK-DOOR a change in the terms of their original agreement and eliminate the original lower rate at which the money was borrowed ! Funny: there used to be laws against loan-sharking !!!
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8-20-2009 @ 12:12PM
Maurice said...
Its the liberals who are saving us from these bad practices by the credit card companies. The conservatives and repubs are the ones who are business oriented and want the credit card companies to rip us off. You never would have gotten this through Bush or Cheney!
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8-21-2009 @ 11:54AM
E_ said...
What in the world are you talking about? Saving us from what? Do you not understand the whole premise of the bill. For the most part, they get to raise the interest rates and require more payment. How is that helping anyone?
When are people going to understand that repubs, conservatives, liberals, democrats are not the enemy. People may classify themselves as something; however, in the end it is people that do these things to people. You can praise these people running everything right now, but they are not helping anyone. They do enough. When the liberals and so called hard lefters get done, none of us will be able to pay our bills.
One thing that is very different about the current administration is that he doesn't have loyalty to any of us. He will do whatever he wants because he wants to and we will see how loyal his followers are when they are starving or dying. They'll abandon him the same way he has abandoned all of us who voted for him.
Stop making this so cut and dry that it is about party affiliation. Most of these guys are in it for themselves and this is their vehicle of choice.
8-23-2009 @ 2:10AM
Brandi said...
Once again the Obama administration, Democrats, and their pals in BIG BANKING pull a fast one on the American public. Banks get billions of dollars in tax dollars to give banking executives mega-million dollar bonuses. At the same time they are printing bonus checks, banks are foreclosing on homes as fast as they can and raise credit card rates to 20%-35%.
Where is a national usury law that caps rates and rolls them back? Democrats 'reform' was scheduled to give banks time to skyrocket credit card rates.
If someone is so risky that rates "need" to be astronomical then the banks should not even loan to them.
First bankruptcy laws were tightened so that you can not get out of credit card debt, then banks raised rates, took bailouts, and tnow pay out huge bonuses. The Democrats and Obama have truly shown they do not work for the little guy.
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8-20-2009 @ 1:04PM
Beverly Smith said...
Wake up! The crooks are the credit card people. They are the ones that are getting richer and richer. As long as you keep using them they up the limits and the interest rates. Try to pay them off. Keep one to keep your credit in a good standing. Asking if they will lower your interest rate, I don't see them doing that. That just raisies a red flag to them to check you account history, then pull another credit report justifing them to lower you limit and raise your rates. The bank credit cards are the worsed. And Capital One don't get me started. Live without them you will be off in the long run. Have a budget, stick with it, and save what you can. It's not going to get any better out there unless you take control.
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8-20-2009 @ 12:28PM
Chuck said...
F' em. What are they gonna do? You folks know that the really aggressive bill collectors are not the credit card companies but instead they are credit purchasers who bought your balance for pennies on the dollar. These scumbags made an investment and they have been so aggressive, especially with the elderly that they have driven folks to suicide. The best response you can have with these folks is tell them you are recording the conversation. Many will refuse to be recorded and at that point you know they're giving you a line of B.S.
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8-20-2009 @ 12:34PM
Chuck said...
This post couldn't be more wrong. We're not in this mess because government is helping those who don't help themselves. The Banks have helped themselves to our cash for decades and the trickle down economic policies of the past 30 years have failed. Government isn't helping those in need, they are helping Banks, Insurance Co's. and Wallstreet. If the Gov't were helping folks in need a couple of points could be made: 1. Foreclosures wouldn't be at record highs, 2. Unemployment wouldn't be heading to 12%
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