Editor’s note: This is an in-depth expansion of RT’s summary this issue.
I’ll be first to admit that when I see a headline about a new legislation being signed, or a new law in effect, I often don’t think that I will feel much change or that it won’t affect me directly. For example, I hardly think that this new credit card legislation will make me use or pay off my credit cards any differently pre and post legislation. In order to try and dispel that way of thinking, I’ve dug deeper and uncovered some changes that are being made which will affect you and me. This law does a lot to protect us, but will likely introduce new credit card practices to be aware of.
First of all, what does this legislation consist of?
There are a handful of new restrictions on credit card issuers, as well as a number of things that will go in affect that I assume are aimed to protect consumers.. For example, they cannot raise interest rates in the first year (with a few exceptions – ie if the minimum payment is not received within 60 days. However the rate must be returned to the original rate if payment is received on time for 6 months), or on existing balances (also with a few exceptions). They cannot charge over the limit fees (again with a few exceptions). They are also not permitted to raise interest rates just because credit scores have dropped, or bills were paid late on other accounts. Penalty fees must be reasonable, and a credit card company must notify you about APR increases 45 days in advance. Payments received by 5pm have to now be recognized to be on time (so credit card companies can’t make up their own deadlines). A cosigner will be required for anyone under 21 getting a credit card. Credit card issuers are no longer allowed to offer gifts to students in exchange for applying for a credit card. This legislation is designed to set some boundaries to prevent card issuers from slapping consumers with last minute fees haphazardly.
How will this affect us?
While this legislation is designed to protect us, it will also likely “punish” responsible credit card holders. If you are one that consistently carries a balance, has issues paying bills on time, and is a consistent target for companies to tack on extra fees, then this will help you. It eliminates a lot of potential for “shady” practices by credit card companies. However, because of this, they will also have to look in other ways to compensate for the money they will be losing since they cannot raise interest rates and apply fees as freely. Now more than ever, the good customers who carry no balance and pay their bills on time will be seen as the ones who don’t bring business. That means that we’ll probably have to prepare for annual fees, higher rates, and lesser rewards ( rewards are my favorite!). It will be more difficult for people to start building credit early (because a cosigner is required to get a credit card before age 21). If a credit card I currently own decides to require an annual fee, I will probably cancel the card and dent my credit score, which is unfortunate. There are just as many opposed to this new legislation as there are for this legislation. And there is a lot of information to absorb and I’ve just touched upon a small percentage on it today. In any case, I’d pay attention to any changes in your credit card terms when they start coming in – if it means new annual fees, higher interest rates, make sure there are no surprises. Most of the law will go in effect February 2010, however there are a couple of things that will go into effect in August 2009.