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New Credit-Card Rules Take Effect Soon
Starting August 20, card issuers will have to provide more disclosure of their rules and fees. Here's how cardholders will be affected.
By Kimberly Lankford, Contributing Editor, Kiplinger's Personal Finance
August 6, 2009
I understand that some of the provisions of the new credit-card law will go into effect this month. Which rules are they, and what changes have credit-card companies been making since the law was signed?
The Credit Card Accountability, Responsibility and Disclosure Act of 2009, which President Obama signed on May 22, will limit credit-card issuers' ability to raise rates, require them to provide better disclosure of their rules and fees, and eliminate some misleading practices. Most of the provisions don't take effect until February 22, 2010. A few, however, become effective on August 20: Card issuers must give 45 days' notice before increasing your annual percentage rate or changing any significant terms of the credit agreement (15 days is the current standard), and issuers must mail statements to you at least 21 days before the payment is due.
These new disclosure requirements are timely because card companies are in the midst of making some big changes in anticipation of the new law. So it's particularly important to review any letters your card company sends.
Since the law passed, several card companies have been increasing fees, reducing credit limits, raising rates, boosting minimum payments and dropping customers with high balances, says Adam Levin, chairman and co-founder of Credit.com.
And they've also been altering their balance-transfer offers. One provision that will take effect on February 22 specifies that card companies must apply any payment you make above the minimum to your highest-rate balance first - so people who have a 0% balance transfer and an 11.99% rate on new purchases will no longer be stuck paying off the 0% balance while interest on the balance at 11.99% continues to accrue. See A Better Deal on Balance Transfers for more information about how these rules have changed.
But card companies are taking some of the shine away from balance-transfer offers. Some that had been offering fee-free balance transfers started to charge a 3% fee with a cap of $50 to $75, then they eliminated the cap and charged the fee on the entire transfer - resulting in a $240 charge on an $8,000 transfer, for example, says Bill Hardekopf, chief executive of LowCards.com. Soon after the new credit-card law was passed, Bank of America boosted its balance-transfer fee to 4%, and Chase increased its fee to 5% on some of its cards, he says.
Hardekopf also found that 0% balance-transfer offers are becoming harder to find -- especially if you don't have an excellent credit score -- and the period that rate is available is shrinking from 12 months to six. Meanwhile, some card companies are offering 2.5% to 3.5% rates for transfers, instead of charging 0%.
Because of these changes, it's important to review the rules and fees and calculate your potential savings before making a move. A balance-transfer offer that looked good in the past may not be worthwhile if you have to pay a high fee - even if the new credit-card laws make it easier to take advantage of the lower rate.
See Fewer Traps for Cardholders for more information about the new law, and The New Rules of Credit Cards for strategies to help you get the best deal from your cards.
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Reader Comments (4)
Posted by: Verlene at 08/06/2009 05:46:34 PM
The best thing to do is pay your balance off each and every month.
Posted by: Alessandro Machi at 08/06/2009 08:07:08 PM
I requested arbitration from Chase Bank over their...decision to raise monthly minimum payments on almost a million of their most loyal, never-late paying customers. They are refusing my request...
Posted by: angela at 08/18/2009 06:52:21 PM
...we tried getting a rate reduction on $23,000 (with Chase Bank) because the interest rate went from 8.99% to 29.99% and after submiting the paperwork they asked for, they refused to reduce the rate......if we would have paid the minimum balance it would have taken us 14 years (to pay off)...we filed bankruptcy:)
Posted by: Bonni in SC at 10/30/2009 12:54:54 PM
I have 2 citi cards, both with low rates. I have had them for several years and ALWAYS pay more than the minimum due, on time, etc. I also have the Target Visa card. First, Target began lowering my available credit as I paid it down. I made a $400.00 pmt. when only $96.00 was due and they decreased my limit by $300.00. I was now close to maxing out my card. Then Citi joined the fun. One card had an 11% interest rate, which they decided to increase to 29.99% interest rate, the other had a 6.24% interest rate. They decided to increase that rate to 24.99%. Again, always paid more, on time, etc. Thank the good Lord above that we had the ability to "opt out", close the card immediately and continue to pay at the lower rate. What kills me is, "What EXACTLY is this doing to our credit scores? I have a maxed out Target card every month and now two closed cards. Can someone please answer that? I am SO mad at the banks...