Credit Card rule changes go into effect in February
January 30, 2010 by admin
Starting next month, consumers will gain some ground on the banking and credit card industry. Advocates for changes to reduce fees, rates and offer additional protections to consumers are getting a lift in February as the industry is finally forced to offer new policies that lawmakers pushed for late last year. The tug of war between consumer groups and the credit card marketplace will probably never end as banks an lenders look to hold on to their multi billion dollar industry and consumer watch groups try to level the playing field by reducing rates and fees.
Last year, the credit card industry finally agreed to some tough changes to help reduce fees charged to consumers, mainly focused on overdrafts, sudden interest rate changes and policies regarding payments. Starting next month, a credit card company can not raise your interest rate if you miss a payment by a few days, as was the case in years past. Your interest rate is essentially locked in for the first year you have the card, with only a few exceptions, eliminating the bait and switch advertising practices of the past. Payments will be do on the same day every month, eliminating the confusion over sporadic monthly billing. When a card issuer wants to raise your interest rate, the new interest rate will only be in effect for new purchase, not previous balances. Consumers will no longer be able to exceed their monthly credit limit, unless they choose to “opt in” for extended coverage if they exceed their balance. This will help eliminate paying excess fees for payments only a few dollars above a credit line. Interest rate changes will require notice of a minimum of 45 days in advance, although the credit card companies are not required to provide any notice for reduction in balances or when closing an account.
Clearly consumer groups are going to be pleased when the new rules go into effect next month. The downside to the changes is that consumers are likely to see most banks offset the reduction in fees with an increase of interest rates across the board. Most card companies today are moving away from fixed rate credit cards and offering only variable rate products, which may look attractive today with the prime rate at zero, but could quickly spike up in the years ahead if the economy shows signs of stabilizing and the FOMC begins to raise interest rates.
The best advice for consumers is:
When possible, pay your balances in full each month.
Make your monthly payments on time to avoid late fees and rate increases
Avoid applying for cards you are not fully invested in as this will lower your credit score
Explore balance transfer promotions carefully to ensure there is a savings when you add back in a fee for the balance transfer (very common in today’s marketplace)
Check with your credit union or bank to see if you can leverage an existing relationship into more favorable terms