The hidden benefots (and dangers) of credit card reform.
FINANCE
The hidden benefits
(and dangers)
of credit card reform
New credit card legislation aims to protect consumers. Find out how the rules apply and tactics you should still watch for.
E
arlier this year, we saw the beginning of much-anticipated credit card regulations, including limits on fees and interest rate hikes. The regulations, all part of last year's credit card legislation, are aimed at protecting consumers from some of the credit card industry's more questionable tactics. Consumers and advocacy groups are praising the new rules. So are many of the millions of Americans who face hefty credit card bills every month. But do the new legislation actually change the way credit card companies do business? And how much protection are you actually getting?
monthly payment ... and how much it would take per month to pay your debt off in three years. One thing to keep in mind, though: these scenarios assume that no additional charges are added to the accounts. So, if you keep charging to the account, the time it takes you to get out of debt and the total interest paid will continue to increase every month.
#2. New restrictions on interest rates for existing balances. The new
legislation makes it more difficult for credit card companies to hit you with sudden changes in interest rates on your existing balances. However, this restriction doesn't apply to future charges (see #2 on the "Cons" list), and there are some exceptions (see #3 on the "Cons" list).
Reading the Fine Print
Sure, there are many positive changes in the new regulations. But it's important that you don't develop a false sense of security. As always, the details on these changes and how they will affect you will most likely end up in the fine print. It is terrific that a credit card agency now is required to notify you 45 days in advance of an interest increase. But most people won't read the tiny details that lay out the exceptions to this new rule, and that's the not-so-great part. For example, if you've recently opened a new account, your rate may change when your "introductory period" ends. An introductory rate must be in place for six months; after that the rate can automatically shift to the "go-to" rate that was disclosed when the card was issued. At the end of the day, with or without the new regulations, you're still in debt. And creditors will continue to make a hefty profit they'll simply do it in different ways.
#3. Notice of rate increases and fees for new charges. Credit card
companies must give you 45 days' notice before increasing interest rates (on purchases made after the notice) or changing their fee structures.
#4. Standardized billing procedures.Your credit card company
must send your statement 21 days before your payment is due. Holidays and weekend due dates are extended to the next business day, and your payment due date has to be the same every month.
#5. No more automatic overdraft protection. Yes, this actually is
a benefit. According to the new legislation, you are no longer defaulted into the overdraft protection program; you have to sign up for it. Banks are aggressively "selling" this to consumers because last year they made over $25 billion on overdraft fees. You're better off to stay "opted out" of this. If you do have a charge declined, it will be a wake-up call, and it may even be a little embarrassing ... but it won't cost you the $39 fee.
The Pros
There are many benefits to the credit card legislation. Here are a few highlights:
#6. Tougher qualifications for people under 21. Today, it's not
unusual for 20- and 30-somethings to graduate from college with huge credit card debt (perhaps in addition to sky-high student loans). Now, people between 18 and 21 will have to meet income requirements or have co-signers. CONTINUED ON PAGE 11
#1. Minimum payment warnings.Your credit card company is
required to tell you how long it will take to pay your debt (and how much total interest you will pay) if you only pay the minimum
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