The Start of Something Big for Credit Cardholders

You should know the latest on recent credit card industry changes and how they affect YOU.  Part of the Credit Card Accountability, Responsibility, and Disclosure Act, or Credit CARD Act, went into effect on August 20, 2009.  The bill includes a broad array of consumer safeguards that will be in place February 2010.  In the meantime, a basic Q& A on this good first step for American families follows. 

What does this initial phase do for consumers?

It brings more transparency to the process of how a credit card consumer gets "priced" or receives a particular interest rate.  The initial phase also requires credit card companies to mail statements 21 days before the bill is due rather than the previously required 14 days, freeing customers from unnecessary late fees.

Why are credit card issuers raising rates?

Issuers are raising rates for two reasons:  1)  to compensate for rising credit losses due to the economic downturn and 2) to establish rate changes – namely rate increases – now before the Credit CARD Act is fully implemented.

Some issuers are raising rates now, but not because of the new law.  It's a shift to retain revenue.  In actuality consumers will not pay more as a result of the law, but will instead be completely aware of the true pricing and fees at the beginning (which is causing rates to appear higher).  In the pre-reform universe, invisible back-end pricing and fees ratcheted the cost up. 

Simply put, borrowers are being greeted by fees at the front door and not the back door…  making how much they will pay clearer up front and enabling borrowers to choose the best rate.

Explain the 45-day notice of a rate and fee hike. 

Credit card issuers must give customers 45 days (from the pre-law 15 days!) notice before changing interest rates & fees.  This provision prevents card companies from springing surprise rate increases and driving up late fee income by manipulating due dates and encouraging borrower mistakes.

The 45-day notice gives consumers a reasonable chance to switch credit cards when they experience a rate or fee increase. 

What about the 21-day payment window?

The 21 days before the due date will save customers from paying unnecessary late fees because issuer statements must be mailed at least three weeks prior to the due date instead of two weeks.

Some issuers have extracted revenue from late fees by making it difficult for their customers to pay on time.  The 21-day rule ushers in an end to shortened time periods between payment due dates, shifting due dates, and engineered delays – like a Saturday or Sunday due date – when a credit card bill payment must arrive.

My minimum payment just went up?  Can issuers do that?

As evidenced by their actions in recent months, credit card companies reserve the right to increase minimum payments, as a percentage of total balance.

While this may be bitter for some borrowers to swallow, they will at least be able to pay down their credit card more quickly and therefore leave that debt behind sooner.

What's the significance of an issuer changing a customer's APR from a fixed rate to a variable rate?

Issuers do not want to apply fixed rates when the new law takes full effect in February 2010, because for the first time fixed rates actually have to be "fixed" (previously a card issuer could change a "fixed rate" whenever they chose and with little notice).  Now, issuers are also strategically switching accounts from fixed to variable rates to take advantage of unusually low prime rates and therefore the variable rates are likely to only go up. 

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