New credit card rules adopted today, coming in 2010

Today the Federal Reserve adopted long-awaited rules to limit some of the most egregious credit card industry practices. Unfortunately, the changes won’t go into effect for about 18 months, on July 1, 2010.

The new rules will protect consumers by:

•    Prohibiting credit card companies from raising interest rates on money already borrowed unless it was borrowed on a variable rate card, or the minimum payment is made more than 30 days late. 

•    Protecting new cardholders by prohibiting interest rate hikes in the first year of an account. The only way interest rates can go up in the first year is if the card issuer disclosed a future rate hike at a preset time when the account was opened. 

•    Imposing a new rule that "zero interest" really means zero, ending the practice of so-called deferred interest. 

•    Prohibiting credit card companies from charging a late fee if the cardholder’s bill was mailed out less than 21 days before the due date.

•    Requiring that payments be allocated fairly among credit card balances with different interest rates. Payments must either be allocated to the highest interest balance or prorated.

•    Prohibiting credit card companies from charging interest on amounts already repaid, through two-cycle billing.

•    Restricting the financing of fees on credit cards where the fees or deposits use up the majority of the available credit on the account.

For a fuller explanation of the rules, and some worthwhile reforms that didn’t get enacted, see this blog from Consumers Union, the nonprofit publisher of Consumer Reports.

Though the changes should be a good thing for consumers, credit card companies have warned that since it will be more difficult for them to raise rates on existing customers, new customers applying for a card may be subject to higher interest rates and fewer low introductory offers.

The American Bankers Association’s statement about the regulations today said: “they may result in increased costs for most card users and reduced credit availability, particularly for consumers with lower credit scores or limited credit history.”

Bear in mind that cardholders’ terms could be altered before the rules go into effect. So keep a close eye on your accounts in the meantime.—Chris Fichera

Comments

[Rob - Credit Card Debt Law]

Any tips for consumers who face changes in terms and conditions of their credit accounts because of these regulations? Is there a legal challenge for this circumvention or is the only method to call your congressperson?

[A F "Bob" Blair Jr]

I sit here, dumfounded at the 1-9-09 e-mail from Jim Micael at the Federal Reserve, in which he states, concerning the Truth-in-Lending Act, "On December 18, the Board approved amendments to Regulation Z that will eliminate the requirement for card issuers to disclose an "effective APR" on periodic statements. Instead card issuers will be required to disclose the total amount of fees and total interest charged in dollars both for that period and for the year to date. The mandatory effective date for these amendments os July 1, 2010." That is a disaster. The Truth is Lending Act was adopted in 1968 to assist the borrowers in comparing interest rates as an Annual Percentage Rate. Now, apparently none will be available. How did the Fed slip this by all the Consumer Advocacy groups???

[cathy]

You can do something about these known problems NOW -
1. Credit card companies from raises interest rate - call them & say that you don't agree with the new term & want to stay on the old ones. What this does is allows you to pay-off the balance at the old rate, BUT you won't be able to charge on the card any more. If you need a credit card check with your local bank - may offer credit cards to their customers.

2. Protect against interest rate hikes in the first year by always paying the balance in full. That way you don't worry about the interest rate - I realize this is sometimes hard to do.

3. Cardholder’s bill being mailed out less than 21 days before the due date. You should know when the bill is due, whether you have a statement or not. If you don't receive it within 5 days before it is normally due, call & get the payment & address & send it in. You may also request that payment dates work within your schedule - like you're paid on th 5th and the 20th, ask for due dates of the 10th or the 30th.

4. Payments allocated to the highest interest balance transaction. I've always felt this to be unfair, but you can do something about it. Call your credit card company, find out what your balance is based on the highest interest rate or you may know that you did a cash advance. Find out where those payments are to be sent to - write a letter indicating how you want your monies credited. You will still need to pay the minimum payment to the normal PO Box, but you can get a jump by sending the other payment too.

Learn how to play the game at www.GuardMyCreditFile.org

[Tim]

Here's a question I haven't seen addressed. Do the new credit card rules apply in any way to department store credit cards? One would assume they would, but the only text I've seen seems to apply to bank-issued credit cards.

Does anyone know the answer to this?

[Peggy]

CITIBANK - Keep an eye on your credit cards if they were issued by CitiBank AND AT&T Universal Card, which was recently acquired by CitiBank. CitiBank raised my interest rate to 29.99%. I was paying by automatic payment (always on time and usually above my minimum payment). Then my minimum payment increased, and I underpaid them by $12.77. I immediately paid another $50 within 10 days of the due day when I realized my mistake. Citibank immediately raised my interest rate to 29.99%. My previous interest rate was 2.99% on 35% of my balance, 9.99% on 25%, and 14.99% on the balance. My monthly interest payment went from $179 to $585 per month. Which raised my minimum payment to more than double. I am now having to refinance my home to pay this credit card off. I sure wish this new policy was in effect now. If anyone has a suggestion, Please make it!
HOW DARE CITIBANK AND THE OTHER CREDIT CARD COMPANIES AND BANKS DO THIS TO THE AMERICAN PUBLIC WHEN WE ARE THE ONES THAT ARE BAILING THEM OUT!

[ripped off]

I just had my interest rate reduced 3 1/2 weeks ago on my universal card to 5.99% for 6 months. I was thrilled that I would be paying down my balance. Last week i received my statement and it said my interest rate was going up to 29.99% or I could opt out at existing rate. I have never been late in paying them so I cannot understand why this is happeneing. If I opt out I will pay the 5.99% for the next 5 months and then my interest rate goes up to 29.99%. I cannot afford to pay this and this is CRIMINAL!!!! How could they be allowed to do this. I do not want to file for bankruptsy but what choice is Citi leaving me. Does someone know how to get out of this mess?

[Kiowah]

Don't declare bankruptcy, that is just what they want you to do and refinancing your home is a terrible idea for unsecured debt.
I say fight back and don't pay. Stop paying all cards that do this.
Put the money YOU earn in YOUR pocket not theirs. Imagine if everyone did this, more cash being spent, maybe even more jobs? Many positives I can see.

[Lastend1]

They don't care about the poeple. They care only about money, and right now banks are the ones with it.

So I agree with the idea of not paying creditcards. However me alone on this idea will just get me sued.

In the end I do have guns and I am willing to fight for freedom from anything keeping me from it.

[Trish]

Here again. The government needs to wipe out the peoples' credit card debt. It seems that the credit card companies are going to keep sticking it to us. Yes, we accumulated the debt, but the credit card companies CEO's seem not to care and walk away with their "incentives". If this would happen, with stipulations, then the economy could recover and help the consumers also. Limit the amount of Unsecured debt the consumers hold, and also limit the amount of money the "big people" can walk away with also. If a person is wiped out, they can only hold one credit card for 5 years or so...You have to have one, because you can't rent a car, make an emergency trip, or anything without one.

[Jan]

CITIBANK
I have been a good customer for probably 15 years or so, and very loyal as they never yanked me around like some companies do. Today I also got a letter stating they are raising my rate to 29.99%! My bill is paid off in full every month! I called and customer service stated it was a portfolio change,and was across the board, not sure if I believe that 100%, but what the hell kind of way is that to treat a long time good customer. I requested to be placed into another type of account (I was still in the platinum cash back account, no longer open to new customers) and they said there wasn't one. I am disgusted. We should all be disgusted. I hope all of Citibanks former customers hates on them all over the internet, and never return. Citibank should be ashamed.

[Pamela]

I was told also that the rate hike was across the board. What we now need to do is close our accounts, never do business with them again, contact our congressman and our attorney general and let them know about their business practices. Hit them where it hurts, their pocketbook. I had been a customer for over 20 years. When I called to cancel my card I reached India. When I called today to tell ATT to stop sending me their "come back to us" mail (but of course still at 29.99%) I reached the Philipines. When I said I couldn't understand the person, I was told to "listen closer". If you or I were to charge this interest on a losn, we would be charged with usury. I especially don't like the fact that billions of dollars of bailout money is being used to fund India and the Philipines. Write them letters, keep writing them and let them know of your anger. They aren't so big that they can afford to lose customers.

[Jean]

Well group, I just received my little letter from Citibank today. I, too, have been with them forever. I paid off my account with them in April 2009 and had an interest rate in the teen. I am thoroughly disgusted with this. The only reason I have any credit card debt is because of a medical leave which forced me to lose 60% of my salary and rely on a few cards last year. I have been working my behind off, with 2 jobs, to pay these cards down and some i.e. Citibank off. Tonight I called and spoke with a Citibank rep I'm sure is not in the U.S. and was told the banks are losing money so this is across the board. EXCUSE ME!?!? Yes, I incurred the debit. I'm not denying that, but how do you expect anyone to pay off their and get out of their financial woes and start putting money back into the banks if the banks block off any instance. I refuse to let them beat me. Somehow I will manage a way around this and only then will I call Citibank and tell them what they can do with their bank. No wonder they got into the shape they are in. Pathetic! Absolutely Pathetic! This entire thing disgusts me. To this date I've told myself everyone is in this financial boat and we're all paddling to keep it going. Citibank.. I'm too much of a lady to tell you what I would really like to say. To those of you in the same boat, hang in there. We'll figure something out. To quote Scarlett O'Hara.. "...as God is my witness..." we will figure something out. Today the mortgage industry, tomorrow the credit card industry.