Consumers Are Dealt a New Hand in Credit Cards

The New York Times - At first glance, the sweeping credit card legislation that passed the Senate on Tuesday looks like a huge victory for consumers. The bill, after all, contains relief from penalty fees and certain interest rate spikes.

But for people who pay off their bills each month, and milk the card rewards programs for everything they’re worth, there is some cause for concern.

For months now, the card companies have been threatening to cut rewards programs sharply to make up for revenue lost because of the new restrictions.

My guess, however, is that this talk is just so much saber-rattling.

Card companies want to make money, and big spenders help them do it, even if those cardholders do not go into debt.

First, let’s lay out the things we know will change because of the new legislation. The bill is chock-full of new rules, which will take effect at various points in the year after President Obama signs the final legislation.

¶There are new restrictions on when card companies can increase the interest rate on balances you’ve already run up. The bill says that banks generally must wait until you’re 60 days late in making the minimum payment before applying a penalty interest rate to your existing debt.

¶Card companies will have to give 45 days’ notice before raising their interest rates. There’s also a notice requirement for any significant change to a card’s terms, which may keep companies from surprising customers who have been saving their loyalty points for years with huge alterations in rewards programs.

¶Banks must send out your bill no later than 21 days before the due date. They cannot send it with, say, 14 days to go, hoping that you won’t get a check to the bank in time to avoid a late fee.

¶If the card company gets your payment by 5 p.m. on the due date, it’s on time, according to the new rules. No more of this early morning deadline nonsense, which led to late fees for payments that arrived with the afternoon mail. Also, no more late fees if the due date is a Sunday or holiday and your payment doesn’t arrive until a day later.

¶Let’s say you’re paying different interest rates on the debt on a single card — one for a cash advance, another for a balance transfer and a third for new purchases. Now, when you make a payment over the minimum balance, banks will have to apply it to the highest-interest debt first. I bet you can guess how some banks used to handle this sort of situation.

¶Banks will need your permission before allowing you the “privilege” of spending more than your credit limit and paying a fat $39 fee for that privilege. The card companies should be ashamed that they needed a law to make this “opt in” requirement a reality.

¶If you’re a student, it will become harder to get a credit card. No one under 21 can have a card unless a parent, legal guardian or spouse is the primary cardholder. Students with their own income can submit proof and ask for an exception to the co-signer requirement. http://www.nytimes.com/2009/05/20/your-money/20money.html

Credit vs. Debit: http://topics.nytimes.com/your-money/credit/credit-and-debit-cards/index.html?scp=1-spot&sq=credit%20card&st=cse

Video:http://www.nytimes.com/2009/05/20/your-money/20money.html

Credit-Card Fees Curbed

The Wall Street Journal - Sweeping new restrictions on credit-card companies would ban extra fees and fluctuating rates and arm tens of millions of consumers with more information on their debts.

Starting in February 2010, a Senate bill passed Tuesday would ban practices such as charging consumers to pay by phone and sudden surges in interest rates. Payments above the minimum due would be applied to balances with the highest interest rates. Information once relegated to tiny print must be made clearer, and consumers will soon be told how long it would take to pay off a balance if they pay only the minimum due.

The credit-card overhaul is set to become the first major legislative change to financial regulation outside housing since the emergency bank bailout enacted last fall, and it's not the last expected this year. Tuesday's 90-5 vote followed pressure from the White House on card issuers to improve fairness and transparency for the three-fourths of U.S. households that use credit cards. The measure is likely to pass the House in the coming days, and President Barack Obama is expected to sign it into law next week.

For consumers, the legislation aims to change habits -- perhaps leading them to make fewer big-ticket purchases with credit cards -- by clarifying the cost of using card debt. Several provisions in the legislation are geared toward forcing consumers to recognize how much they're paying in interest. Card issuers would also have to provide information on consumer-counseling and debt-management services.

Consumers also wouldn't face a retroactive interest-rate increase on existing balances unless payments are 60 days overdue. Even after that rate increase, a consumer could get the old rate reinstated by paying on time for six months.

The legislation bans a practice known as double-cycle billing, in which a late-paying consumer is assessed interest on a prior month's balance that had been paid in full, in addition to the late balance. Issuers also will have to send bills 21 days before the due date and provide at least 45 days' notice before changing any significant terms on a card.http://online.wsj.com/article/SB124272801896734045.html#mod=testMod

White House to Put Credit-Card Rates in Cross Hairs

The Wall Street Journal - WASHINGTON -- President Barack Obama will soon turn his attention to high credit-card rates, giving a potential boost to congressional efforts to put limits on the industry.

Banks have come under increasing pressure over raising their credit-card rates in recent weeks. Consumer groups are particularly critical of those that raised rates on some existing card holders even as the banks received federal bailout funds. Banks have said credit-market conditions and changes in borrowers' credit scores necessitated the increases.http://online.wsj.com/article/SB124015800037232541.html#mod=testMod

Debt Trap: College Borrowing Sinks Students

The New York Times - As a college student, Stefan Heise relied on student loans and credit cards to pay for his education. Now out of school, he is more than $80,000 in debt and facing bankruptcy.http://video.nytimes.com/video/2008/12/31/business/1194837095176/debt-trap-college-borrowing-catches-up-.html?partner=permalink&exprod=permalink