What does the new credit card law mean for credit card users? Last May President Obama signed into law the CARD (Credit Card Accountability, Responsibility and Disclosure) act. The law went into effect, Monday the 22nd of February. How will the law effect ordinary citizens? The most important features include eliminating unannounced rate increases, punitive fees for going over the credit card limit and double-cycle billing practices.
Fees
While the law and its strictures are great news for Americans, as we’ve seen the credit card companies reacted to the law’s passage by increasing certain fees to help offset the loss of revenue from the new law. A few examples are Discover charging a 2% fee on purchases made outside the US and Chase raising balance transfer fees to 5%, up from 3%. The new law does not address fee structure, so people should pay close attention to their Terms & Conditions statements. In addition, some of the rewards programs are shrinking. Those frequent flyer miles might stack up a little slower than they used to.
An additional possibility, and one that seems to be coming to fruition, is that credit card companies would do more to limit the credit available to consumers. According to IRA Bank Monitor, the credit available to consumers through credit cards dropped by over $200 billion since the law was passed.
Restrictions
There is good news in some of the restrictions placed on the credit card issuers by the CARD act. Companies will be limited in how they market their products to high school and college students. Currently a staggering 35% of college students have over $10,000 in credit card debt. Another piece of good news, although the average consumer might not think so, is that credit card companies are becoming more choosey about who gets a credit card. Suddenly getting a credit card could be a bit more like getting a loan, with disclosure of income being required.
Under the CARD act, credit companies have to give consumers 45 days notice before raising interest rates on the account. That applies to standard rate cards, in good standing. Many consumers, however, are being shuffled over to variable rate cards, where the interest rate is tied to the prime rate. The prime rate is very low right now and what goes down must go back up, so variable rate credit card holders will see interest rate increases. An additional factor is that accounts past due by two months can have interest rates increased without a cap on the rate.
Bottom Line
Overall the law is great news for consumers, but it does not make credit card debt any less risky. Having an emergency fund in place, somewhere in the neighborhood of 3-5 months of expenses will help reduce the likelihood that you’ll use the credit card for big purchases. Planning a strategy to eliminate credit card debt is important, too. The best way to lower the impact these companies have on your day to day life is by getting them, and their credit cards, out of your life.
