Senate passes credit card reform: What's in it for consumers

The Senate credit card bill passed today should curb some of the uglier fees charged by the banks that issue them. In a nutshell, the bill would provide more upfront disclosures about how consumers would be charged, and then restrict how card companies could alter fees and interest rates after a customer has signed up for a card. Here’s a summary of the bill’s measures:

•Interest rates can’t be raised during the first year of an account
•Customers will be notified 45 days in advance of any change in interest rates
•Bills can be paid online or over the phone without incurring a processing fee
•Customers must be over 60 days late on payments before their interest rate can be raised on balances; if the rate is raised, it will go back to the lower rate if customers make the minimum payment on time for six months in a row. 
•Overlimit fees can’t be charged unless cardholders are told that the purchase will put them over their limit and they authorize it to go through anyway
•If your card has more than one interest rate on balances, then payments must be applied to the highest interest rate first
•Gift cards can’t expire for five years, and issuers can’t charge dormancy fees for unused amounts left on the card
•Credit card statements must be mailed out 21 days before they’re due
•Individuals under 21 will need a co-signer on their cards unless they can prove that they have the means to make payments on their own
•Credit card agreements will have to be posted on the internet

The banking industry, however, is unhappy with some of the provisions and warns that cards will become harder to get and carry higher interest rates. 

The bill will go to President Obama for signing after a compromise bill is hashed out with the House, which passed a slightly different bill in late April. The provisions could go into effect nine months after Obama signs off.--Chris Fichera

Comments

[Ms. Green]

"Overlimit fees can’t be charged unless cardholders are told that the purchase will put them over their limit and they authorize it to go through anyway"

Finally! I never understood the point of a limit if they don't tell you when you cross it, and then charge you for doing it!

[Tenika]

I seem to remember there originally being a provision that prevented the card companies from increasing the interest rate and applying it to the current outstanding balance on the card. That seemed like one of the more egregious abuses by card companies. This credit card reform is all bark and no bite.

[Burzin]

I have always paid my credit cards on time and have immaculate credit, however this NYT article really bothers me http://www.nytimes.com/2009/05/19/business/19credit.html?_r=2&src=twt&twt=nytimes.

The summary of the bill's measures, listed above, seem like a sane set of requirements, and let's hope that the credit card companies do not really mean this when they say "Those that manage their credit well will in some degree subsidize those that have credit problems."

[Gavin Andresen]

I'd love to see Consumer Reports report on whether or not credit cards are "harder to get and have a higher interest rate" after a year or so. Hold the banking industry accountable for what they say!

[janet]

its about time

[Mel C]

How about when they lower your credit limit and then slap you with an over-the-limit fee? That happened to us: We had made a big payment almost halving what we owed to just under $300... so they lowered the credit limit to $300. Once interest charges hit the account we were over the limit, and hit with a nice over-the-limit fee. Needless to say we paid off the account as fast as we could and closed it, but that was abusive!

[Karin]

To Tenika @ 5:03:25 PM.
Reread the post. The provision you are referring to is in there. The law says they can ONLY raise the rates on existing balances for customers who are over 60 days late paying their bill.

[Matt]

Why are gift cards being included in a bill that pertains to credit cards? Seems kind of random...

[Carrie]

I have had that happen to us as well. We made a large payment and they lowered our credit limit so the interest put us over our limit and they charged us over limit fees. It says nothing in there about lowering credit limits to exactly what you owe and then hitting you. It's only about interest rates and if you charge over your credit limit, not if they lower your limit.

[Meh]

It looks like some of the best advice would be to pay off your credit card(s) as soon as possible, and switch to debit or cash.
That's my current plan.
It's looks like I'm one of the customers who have never missed a payment and pay more than minimum that will be getting essentially punished by this.

[gun]

and why do they need 9 months(!!) after obama sign-off? almost everything obama promises to do seems to come with 9 month-24 month riders. FAIL!

and talking of credit card reform, what use is Credit Card reform if they can't fix the credit rating system by Experian et al. The current system is a lot of times just random and egregious. For example, why on earth should my credit take a hit if I close a credit card account?! Why should it take a hit every time I'm a day late in paying my bills? Experian, TU and Equifax have been in bed with the Credit Card companies far too long and its time somebody closed them down.

[cb]

"Individuals under 21 will need a co-signer on their cards unless they can prove that they have the means to make payments on their own"

This will be among the biggest helps. A lot less kids getting poached while college freshman and starting out their professional lives with bad credit.

[hawk]

1. Interest rates can’t be raised during the first year of an account A: Company adjusts rates to a higher one at the start.
2. Bills can be paid online or over the phone without incurring a processing fee A: Raise rates to cover extra staffing needs.
3. Overlimit fees can’t be charged... If you don't know what your limit is and don't know when you're going over it do you deserve a CC? A: Can't penalize poor decisions so yes more rate raises.
4. If your card has more than one interest rate on balances, then payments must be applied to the highest interest rate first. You want your payment to go on the 19.8 $200 clothes purchase and leave the promo 12.9 $2000 HDTV ride? ok :)
5. Credit card agreements will have to be posted on the internet. Internet or mail let's face it the sad fact is MOST never read them.
6. Credit card statements must be mailed out 21 days before they’re due. A: Shorten the grace period
I work for a major credit company. Interesting people want big brother to protect them from something they don't need yet think they're entitled to. Talked to tens of thousands of customers over the years and hearing "it's my fault" is a RARE thing. Shouldn't YOUR big brother should be focusing on something most can't avoid like health care costs?

[Rich]

So rather than change the habits of dumb people who can't read card agreements or even begin to understand things like budgeting, we have decided to reign in card companies practices and thus punish people who use credit cards appropriately. Good job congress! Thanks for returning high annual fees and reducing rewards programs. I mean we certainly don't subsidize these folks enough yet with our medicaid, food stamps, welfare etc etc so by all means lets extend it to credit cards as well.

http://www.nytimes.com/2009/05/19/business/19credit.html?_r=3&src=twt&twt=nytimes

[Vincent LaRochelle]

Will these new rules be retroactive? Will this lower the interest rates they increased because I fit some profile although I always made my payments on time?

[LW]

> Posted by: hawk
>
> 2. Bills can be paid online or over the phone without incurring a processing fee A: Raise rates to cover extra staffing needs.

Ok, so that 'processing' screen you get when submitting a payment online is someone on the other end copying the information to a piece of paper? Ditto with the delay after punching in your info at the automated phone prompts? Both of which take more people then opening an envelope they get in the mail and scanning in a check?

> 3. Overlimit fees can’t be charged... If you don't know what your limit is and don't know when you're going over it do you deserve a CC? A: Can't penalize poor decisions so yes more rate raises.

So you're OK with companies lowering limits without telling you and then racking up the over-limit charges? Or maybe your payment was held up a few days in the mail (since internet and phone payments take more people to process) and did not post when you expected it to?

> 4. If your card has more than one interest rate on balances, then payments must be applied to the highest interest rate first. You want your payment to go on the 19.8 $200 clothes purchase and leave the promo 12.9 $2000 HDTV ride? ok :)
> ...
> I work for a major credit company.
That is SOOOOO obvious from your answer. It is ALWAYS better to pay off high-interest balances first. Paying off the lower balance first has a better 'feel-good' value, but you'll end up paying more in interest.

[Karen Ryder]

I have two business accounts with Bank Of America. I have always made payments on time. Even paid more than the minimum payments. I just received a letter that they want to raise the interest rates on both cards. One is 13.74 and the other 12.34. They want to raise both to 24.99, if I keep my account open. Will these new rules be retroactive? If I close them it will stay the same as now. Not sure what to do. If this bill will help me.

[Britt]

Hmmm, why the special treatment for persons between 18 and 21? I mean, either one is an adult at 18 or not. If not, then we should change all laws to so reflect. This, like the drinking age seems duplicitous. If we really want persons to not be declared as adults until they hit 21 then we should be honest and say so.

Me, I don't care either way, just pointing out inconsistency. And yes, I know it is not the only one, just the one this article points to, today.

[Andrew Buffalino]

Quoting Hawk:
"4. If your card has more than one interest rate on balances, then payments must be applied to the highest interest rate first. You want your payment to go on the 19.8 $200 clothes purchase and leave the promo 12.9 $2000 HDTV ride? ok :)"

If you owe a fixed amount of debt at varying interest rates and are making a fixed payment on that debt, It will always be best to pay the higher interest debt first. Although the higher interest on the smaller amount generates a smaller portion of the monthly fee, the effective interest rate would remain higher for a longer period of time, and the consumer would end up spending more money on interest.

[Pete]

Don't drink the Kool-Aid. It all sounds great, but it will cost the credit card companies a fortune. The result, higher intrest rates for everyone because they will have to make that money back. Its all smoke and mirrors, and this will only end up punishing people who pay their bills on time every month... but thats probably the idea anyway, comrades..

[mike]

way to go on the gift cards. sucks when you get relocated overseas and those go to waste :|

[glen]

I'm not sure why possible higher interest rates really bother "people who pay their cards on time" so much, since the whole idea of paying off your balance every month means you AVOID interest fees in the first place....and as for credit card rewards, good customers are not entitled to those. I love how people scream "entitlement" in regards to this credit card legislation, and then cry "I will lose my rewards wah!"

Credit cards are for credit access. No more, no less. Everything else is just bells and whistles marketing, which is ALWAYS subject to change pending market conditions. If/when credit access genuinely becomes an issue, those most likely to be affected will be people with bad credit, who probably should not have a credit card in the first place. Some of us need to learn to do without and start SAVING for what we want.

Credit cards should not be used in lieu of income. This is why so many Americans are in such a bind.

[Andy]

Now the credit card industry is feeling the wrath of Congress who have suddenly discovered, after years of happily taking corporate contributions, that perhaps the consumers – i.e. disgruntled voters – may actually be worth listening to. congress and the current administration have yet again gone too far and many prudent, hard working and financially careful Americans (like me) will end up paying the price for the misspending of others.

[Tony]

I'm frankly disappointed. Most of what the bill outlaws are things that are perfectly reasonable for credit card companies to do. Meanwhile, a common practice that should have been illegal all along seems to have been left untouched, and that is delayed application of funds to a credit card balance.

Basically, I try to pay my bills so that the credit card company receives the money as close to the due date as possible while still guaranteeing that they get it before that date. I got a nasty surprise one month however when one of my card issuers (I believe it was Discover) hit me with a late fee and interest charges even though I had paid my bill electronically, and timed such that they had the funds in hand more than 48 hours before the bill was due. It turns out that they hold payments for up to four days before applying them to the card balance. Meaning not only that my bill is actually due four days before they say it is due, but also for those cardholders who carry a balance Discover spends four days collecting interest from the cardholder on the outstanding balance while simultaneously collecting interest on the card holder's payment.

[Bad Credit Card]

having a credit card takes so many options. and it the end it would also end up to lots of choices, either you will get a bad credit or good.