new credit card law

8/3/2019 New Credit Card Law

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5 Moves to Make Ahead of the New Credit CardLaw

by Connie Prater

Tuesday, February 9, 2010

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With new regulations starting in less than a month, you may need to take stock of your credit cardportfolio to determine which cards' terms are changing to your benefit and which feature changesthat can hit you in the wallet.

The most important thing to do, says Lauren Bowne, staff attorney at San Francisco-basedConsumers Union, is be aware of your card terms. So much has changed in recent months thatconsumers need to pay attention to what is and isn't featured in the credit card.

"Even if you're the person who pays off your balance and doesn't even have any credit carddebt," says Bowne. "They might get a notice that says they're getting a $100 annual fee. Evenpeople with stellar credit and stellar credit payment histories need to pay attention."

Here are five smart credit card moves to make before Feb. 22:

1. Consider waiting to get new credit cards until after Feb. 22 because new accounts areprotected from interest rate increases for the first year. As issuers compete for new customers inthe new reform law landscape, there may be good deals and offers for people with good credit.

2. For existing accounts, consider doing a balance transfer from higher interest rate cards toaccounts with lower APRs. Some issuers are offering good customers balance transfers of at

least a year. Remember that there is a cost of 3 percent or 4 percent of the amount transferred,so weigh that decision carefully. Also, take note of what the new interest rate will be AFTER thepromotional period ends. If it's higher than the rate on the old card or only a few points lower, itmay not be worth it to switch.

3. Have a Plan B backup card or two. Issuers can still lower your credit limit and close youraccount without advance notice. Make sure you have more than one card as a backup in casethis happens to you and you need a credit card for emergencies.

4. Charge a small amount on those other cards every other month and pay it off in full when thebill comes. This avoids any dormancy fee that may be assessed and may prevent the companyfrom closing the account for inactivity. Some issuers require a minimum amount of charging toavoid inactivity fees, so check your terms.

5. Young adults' access to credit will be restricted by the new law. For college students or anyoneunder 21 who is responsible with credit, the best move could be to get a credit card now whileyou still can on your own. After Feb. 22, you will have to get an adult (over 21) co-signer and maybe asked to show proof you have the ability to pay.

Some Advice Doesn't Change


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In addition to the moves to make before the law takes effect, good credit card habits remainimportant, some of them even more so.

Don't go overboard. Making too many changes within a short period -- as in opening or closingseveral accounts at once -- can hurt your credit score. If you're closing or adding new accountsand about to apply for a loan, it may be better to keep the cards you currently have -- even if the

terms are worse. Closing an account that you've had for a long time can negatively impact theportion of your credit score related to credit utilization ratio.

Pay your bills on time. Even though the credit card law gives you a 60-day window for latepayments before banks can impose penalty interest rates on existing balances, payments notreceived by the due date will show up as bad marks on your credit report.

Pay more than the minimum amount due. It will help you pay your credit card debt off faster.The new law mandates that your billing statement include a prominent notice of how long it willtake you to pay off your debt. For many, that could be a wake-up call.

If you're having trouble paying your bills, get help from an accredited nonprofit creditcounselor. Your monthly credit card statement will feature a toll-free number to call for help. The

credit card reform law requires that issuers prominently display a toll-free number that consumerscan call to get the names of at least three consumer credit counseling agencies that have beenapproved by the U.S. bankruptcy courts for credit and debt management counseling.

Stay on top of your mail. The new law requires that credit card issuers notify you of changes toyour account. That means you can't leave that mail unopened on the table for a week. Somechanges are likely to have deadlines and time elements that can hurt you financially if you don'tact quickly.

Bowne, from the consumer group, recommends consumers create a list of their credit cardaccounts that includes key terms (i.e., the interest rates for purchases, balance transfers andcash advances, fees, due dates and grace period). She recommends marking your calendar toremind yourself when promotional rates end so that you can be sure to pay off the balance before

higher interest rates begin on those accounts.

"It requires a lot of organization and a lot of time," Bowne says. "The more credit cards you have,the more things you've got to juggle and the more things you've got to know."

She adds: "At least now, luckily, your credit card due date will be on the same day each month."

7 ways to protect against being a victim of credit card revengeWhile you can't shield against a broken heart, you can safeguard your credit

By Erica Sandberg

The end of a relationship can be the start of serious financial problems. Sharing finances may have felt rightwhen you were a happy duo, but it can make for a complicated -- and costly -- breakup. Without taking the

proper precautions, your past partner may ring up debt that you'll be responsible for and may even try to

borrow money in your name. (See "Credit card revenge spending.") Here's how to make sure your credit is

safe from a revenge-seeking ex.

1. Protect personal credit cards. According to Jim Randel, author of "The Skinny on Credit Cards,"

it is illegal for anyone to use your individually held credit accounts without your permission --
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whether it's your partner or your spouse. However, if the credit account was granted to you and you

alone, it's up to you to make sure no one else has access to it. Always be in possession of the

card, and if your ex can knows your online ID and passwords, change them immediately and make

them un-guessable.

2. Look into a legal separation. If you are married,an extra safety step may be in order. "If divorce

is on your horizon, get immediate legal advice about a possible legal separation if allowed in your

state," says Clint David, an attorney in Dallas. "Depending upon your state's laws, any debt that the

other person charges to the account after that date might be theirs alone."

3. Close co-signed and authorized user accounts. Shut down any authorized userorco-signed

cards, says Randel. It is more important to protect yourself against wrongful debt than any ding you

may get on your credit report forclosing an account. In the event that there's a balance on a co-

signed card, you will probably have to pay the debt off first. Tip:Transfer what you oweto another

account that's in your name only and then close the original.

4. Monitor your credit report. You are entitled to one free credit report per year from each of the

credit bureaus, but you may get more at no cost if you suspect fraud. However, even if you have to

pay for them, make a point of checking the reports if you feel the other person could compromise

your credit. And contrary to popular belief, pulling your own credit report doesn't impact your credit

score. Look for any debt you didn't incur, as well as loans and lines of credit you didn't pursue. After

all, you can only dispute them if you know they exist.

5. Add a fraud alert to your credit file. If you are really worried your ex will open new cards in your

name and leave you with the bill, contact the credit bureaus and request a fraud alert. An alert will

make it much harder for someone to fraudulently open an account because the credit issuer will

have to call you and verify your identity before granting a line of credit or a loan.

6. Speak with a lawyer. Sometimes it makes sense to pay for help and guidance. "Seek legal advice

to see how best you can protect yourself," says David. Also, if the other person does use credit

cards when they weren't supposed to, you may decide to take them to court. While you can take

the matter to small claims court (where you represent yourself), the amount the other person

charges may exceed the award limit for which you can sue. In all other courts, attorneys are

strongly recommended.

7.Talk with the other person. This may be the most obvious method of dealing with credit andrelationship fears, but it's often overlooked. Discuss what you want to do with joined accounts and

how you will each pay for combined debt. Still, "if the dissolution is hostile," warns Randel, "you

might want to freeze or close the account first." Put all agreements in writing: You will pay this

amount from that card, the other will pay that on the other. Turn over any cards that may be the

other person's and ask that he or she do the same. Tying up loose ends now can result in far less

money spent on legal fees later.

Don't ignore what can happen to your finances and credit during and after a love split. There's not much you

can do to shield yourself from a broken heart, but there is a lot you can do to safeguard your credit.

Credit card penalty rates can top 30 percent; how to avoid them

Survey shows penalty APRs can double, triple normal card rates

By Jeremy M. Simon

Think it costs a lot to borrow on your credit card now? Make a late payment and your interest rate could

jump to more than 30 percent.

Default interest rates -- the penalty rates charged when borrowers violate the terms of their card agreements

-- can be two to three times higher than regular rates on your credit card. The current national average
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default rate stands at 27.88 percent and the mean default rate is 28.99 percent, according to data compiled

by CreditCards.com. And while credit card reforms are tightening the rules on how quickly issuers can

implement them, default rates are still an indignity that should be avoided at all costs.

"It's starting to be almost unbelievable how high some of the credit card companies are going with their

rates," says Lauren Bowne, staff attorney with advocacy group Consumers Union.

How the survey worked, what it showed

To calculate the national average, CreditCards.com surveyed penaltyannual percentage rates(APRs) listed

for approximately 90 online credit card offers from a variety of issuers, ranging from major banks to

subprime lenders. Not all lenders charge a default rate, and those that did not were not included in the

average. In instances where the card offered a default APR range, we chose the highest APR in that range.

What we found was that for cardholders with a typical default rate, even one mistake can be costly. At

today's average penalty rate, someone who borrowed $5,000 on a credit card and consistently paid $150

per month at could wind up forking over $9,726 to pay off that debt. That's $3,468 more than would be

required at the current average national APR for new card offers, which CreditCards.com's Weekly Rate

Report showed to be 13.16 percent.

But not all default rates are created equal. At the high end, HSBCcharges a penalty rate of 31.99 percent.

Why so much? "Details of programs are proprietary, but I can tell you that HSBC strives to keep its products

competitively priced and default APRs are only one aspect of pricing," says HSBC spokeswoman Kate P.

Durham. "We believe we fairly set our prices based on economic, market and other factors in order to

achieve an adequate return for our shareholders while providing customers with products and services that

meet their credit needs."

On the other side of the spectrum, Navy Federal Credit Union charges a penalty rate of 17.90 percent, the

lowest among the cards surveyed. Thecredit union introduced its default rate in May 2009 to account for

credit risk, and since then has not altered its default pricing. As for why its default rate is comparatively low,

the Navy Federal Credit Union points to laws governing lending by credit unions. "The Federal Credit UnionAct caps credit union APRs at 15 percent; however, our regulator (National Credit Union Administration) is

permitted to periodically review this rate every 18 months to determine if it should be higher. NCUA is

currently allowing credit unions to charge no more than 18 percent APR," says Thomas Greek, Navy

Federal's assistant vice president of credit cards, in an e-mail.

Some issuers that cater to cardholders withbad credit -- known in the business as subprime customers --

don't charge any penalty APRs. New Millennium Bank says its secured credit cardholders may default, "but

we would like to give customers the opportunity at a second chance at building their credit, instead of taking

advantage of the customer with inflation or penalty rates when an occasional payment is missed," says

senior vice president Chip Sisler. That doesn't mean cardholders who slip up get a pass, however, withNew

Millennium charging $20 each for late payments and exceeding yourcredit limit. Subprime issuerFirst

Premierlikewise doesn't charge its cardholders penalty rates, opting for penalty fees instead.

The changing face of penalty rates

These rates are nothing new. Many cardholders have been dealing with penalty APRs since they first

appeared in the late 1990s. Since then, they've become much more widespread -- and often more costly for

borrowers. Default rates averaged 22.75 percent in 1998, according to an annual survey by consumer

advocacy group Consumer Action, and have fluctuated over the years before reaching 25.28 percent in the

spring of 2009.
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However, under a new law that takes effect in February 2010, banks will find it tougher to raise rates when

cardholders make mistakes. The consumer-friendly Credit CARD Actsays that cardholders will need to be a

full 60 days late with a payment before they can be penalized by an issuer. Additionally, the CARD Act

requires banks to review any rate increases at least every six months, but it doesn't require a rate decrease

by any specific amount. That could change, however. The Federal Reserve, however, hasn't yet written its

final rules regarding this portion of the Act, since it doesn't take effect until August.

How to avoid default rates

Borrowers need to avoid the errors that activate default pricing. Luckily, these default rate triggers are easily

identifiable. "Year after year, we know what they are," says Linda Sherry, national priorities director for

Consumer Action in Washington, D.C.

Late payment. "The biggest trigger is a late payment," Bowne says. A credit card payment may be

considered late if it isn't received by the due date and time, so make sure to be prompt when

sending your money either by regular mail or electronically.

Going over the limit. Nearing the limit on your credit line can impact yourcredit utilization

-- the ratio of credit available to credit in use -- and lower yourcredit score. Exceeding the limit,

meanwhile, can result in penalty APR pricing. Both mistakes make borrowing more costly.

Paying with insufficient funds. Just as merchants don't appreciate being paid with a check that

later bounces, banks frown on payment from an account with insufficient funds. Not surprisingly,

banks penalize cardholders who make that mistake.

As banks struggle to make moneyin a challenging economy and regulatory environment, it's a bad time for

cardholders to slip up. "By talking to consumers, right now credit card issuers are looking for every excuse to

jack up APRs," says Consumer Union's Bowne.
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