A Plain English Guide to Credit Card Reform |
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by: Janna Weiss
Credit cards are all over the news these days. Are they a good thing or a bad thing? Do credit card companies play by the rules? What’s with all this credit card reform, anyway? If you’re a little overwhelmed by it all, you’re not alone. It’s easy to get lost in all the industry terminology and lose sight of how the upcoming legislation will affect you, the cardholder. So here’s an easy guide to credit card reform and what it will mean for you.
No Universal Default. If you’re late on your utility or mortgage payment (or any other payment that isn’t related to your credit card), credit card issuers will no longer be able to hike up your interest rate as a result.
No Double-Cycle Billing. If you pay off your balance in full, that balance will not be subject to finance charges on your next billing cycle.
Limits on Interest Rate Increases. Card issuers will only be allowed to increase your interest rate if you make a late payment; if you agreed to a variable interest rate; or if the low rate was part of a time-limited promotion. Otherwise, the issuer has to give you 45 days’ warning of a rate hike. You’ll also have 3 billing cycles after the increase to decide whether or not the new terms are agreeable. If not, you can close your account and pay off your balance at the previous interest rate.
Reasonable Due Dates. Lenders will be required to give consumers at least 21 days to pay their bill before it’s considered late. The due date and time will be clearly printed on the credit card statement. Lenders will no longer be able to change due dates and times arbitrarily.
Fair Payment Allocation. Card issuers will be required to apply your payments to higher-interest charges first. For example, your payments would be first applied to a cash advance with 24% interest rather than regular purchases made at 12% interest.
Limits on Over-Limit Fees. Holds placed on the credit card (such as those made when reserving a hotel room or rental car) will no longer push you over your credit limit. Cardholders will also be able to choose whether they want to be able to go over their credit limit and pay the resulting fees, or whether they want their cards to simply be declined when they reach their limit.
An End to Fee-Harvesting Cards. As subprime cardholders will tell you, sometimes the cost to obtain a credit card is higher than the actual credit limit! The reform will put rules in place for credit cards that have high start-up and maintenance costs, including full disclosure of the card’s terms and how much credit will be left after start-up.
More Transparency. Your credit card’s terms must be clearly printed on your monthly statement. Bills will also contain a summary of all the interest and fees you’ve paid in the past year. Credit card offers must tell you the criteria used to determine your interest rate and credit limit. Also, foreign transaction fees must be clearly disclosed before you sign up for a new credit card account.
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