26 - 2010

Post-credit-card reform statements

In February 2010, the Credit CARD (Card Accountability, Responsibility and Disclosure) Act passed late last year in the United States took effect. The Act includes a number of provisions that will change life for consumers. For me, it came to life this week when I went online to retrieve my credit card statements.

For one thing, all of my bills were ready at the same time! I have four cards, with two issuers, that we’ve been charging a little on each month to keep them open — this month, I noticed all the bills came at the same time. And the statements looked different. If you haven’t checked yours out yet, here’s what I found, with some highlights from each style of bill.

Chase looked like this:

And AmEx was a little different — with some additional detail because we have a higher balance on this one at the moment:

What the CARD Act changes mean to consumers

If you’re not clear yet on the details of what the legislation means, here is what it will do, in a nutshell:

1.    Same payment date every month. Cards are now supposed to have payments due the same date every month — so you can put it on your calendar or set a reminder and know you’ll be on time.

2.    Two-cycle interest is out – mostly. Lenders can no longer use two-cycle billing where they charge interest on the average balance for each of the past two months. But that restriction only applies to cards with grace periods. Some reports say store credit cards now have NO period so they can still use what amounts to a two-cycle billing period.

3.    Prove you can pay. Lenders must consider a borrower’s ability to repay the debt before approving a card or raising credit limits. This will help borrowers stay within healthy debt limits, but it will also limit credit available to consumers. It also means you might not get “instant credit” discounts at stores unless you carry a pay stub with you (note: bad idea!).

4.    Less penalty interest. Card issuers now have to wait until payments are 60 days late before charging penalty interest rates. But you’ll still pay a late fee and your credit score might suffer. Cards have to tell you if they’re going to raise your rates. And after you pay on time six months in a row, the interest rate must revert to the original rate.

5.    Co-signers for those age 18 to 21. The days of credit card issuers and their free T-shirts and footballs on college campuses are over. Now, to open a credit card, borrowers between age 18 and 21 need a co-signer or have to prove they make enough to pay off the debt.

6.    Over-limit charges only by choice. You can’t charge over your credit limit unless you have previously “opted in” for over-limit access. Fees will still apply.

7.    Payments credited the right way. If you’re paying off a balance, this is welcome news: If you have two different interest rates with one credit-card issuer, the card has to apply any extra payments to the highest-rate balance. So, if you have a cash advance that carries a 22 percent interest rate, and a purchase that carries a 10 percent interest rate, anything above your minimum payment will be credited against the cash-advance balance until it is paid off. (Currently, credit card companies credit such payments against the lowest-rate balance so they can make more money.)

8.    Possibly higher fees. Banks are raising fees to make up for lost revenues. Read all information you receive from your bank, credit card lender or credit union. If the fees are too high, call and complain, and consider opting out or moving your account.

9.    Watch for rate notices. The CARD Act says lenders can only raise rates with 45 days’ notice to the card holder. A card holder can avoid paying higher rates by closing his/her account. However, if card holders use the card more than 14 days after the notice is sent, the higher rates will apply to those charges. Read your mail!

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