Understanding the New Credit Card Rules
A new federal law that became effective on February 22, 2010 is expected to save cardholders billions of dollars in fees and interest payments. But even with these friendlier rules, you still must pay close attention to your monthly statements. Here are the most important changes.
Interest rate protections
To your credit. The interest rate on your credit card can no longer be raised because you made a late payment on a bill other than your credit card bill. But paying bills late still hurts your credit score—and a good credit score is more important than ever because card issuers have responded to the new rules by getting more selective about which customers they’ll accept. It’s now going to be much harder to get a credit card if you have a low credit score.
Rising rate? Your interest rate on a new card can’t be raised for the first year unless it’s an introductory promotional rate. In that case, the introductory rate must last at least six months.
Take notice. Card issuers must give you 45 days’ notice before raising your interest rate, and give you the option of cancelling the card and paying off your balance at the old rate. But there are exceptions: You don’t get the 45-day heads-up or the option to pay your existing balance at the old rate if:
- Your credit card payment is late by 60 days or more.
- Your old rate was clearly disclosed as promotional and has expired.
- Your card has a variable rate. In this case, your rate could rise with little warning. In anticipation of the new law, many banks shifted to variable-rate cards.
Highest rate first. If you have a card with balances on which you pay different interest rates and you pay more than the minimum every month, the extra money in your payment must reduce your highest-interest balance. For example, say you’re paying 9% on your old balance but 19% on new purchases. If you make more than the minimum monthly payment, the extra money will go toward reducing your 19% balance. The result: Your debt will be paid down faster.
Be good! Now you’ll be rewarded for good behavior. If you trigger a higher rate because of a 60-day delinquency, the old rate must be restored after you’ve paid on time for six consecutive months.
The new facts about fees
Under the new rules, you can’t be charged a fee for going over your credit limit unless you’ve stated in advance that you’re willing to do so. If you haven’t agreed to pay this fee, the credit issuer will reject any transaction that puts you over your credit limit.
Think long and hard before you agree to pay a fee for the privilege of exceeding the limit on your card. For most people, it’s smarter to limit your spending to what you can afford and save the fee.
You also can’t be charged a fee for paying your bill by phone or electronic transfer. But you can be charged if you need the help of a live person to make a payment.
The law doesn’t prevent issuers from creating new fees or increasing existing ones. For instance, some issuers have started charging an “inactivity” fee for cards that you don’t use. Others have imposed, or increased, a fee on purchases made outside the U.S. These include online purchases when the retailer is located in another country. To stay up to date on new charges, you need to read the “terms and conditions” section of your statement.
What your credit card company MUST tell you
Under the new consumer protections, your credit card statement must clearly show:
- The fee for late payments, and include a warning that they can result in a higher interest rate.
- How long it will take and how much it will cost to pay off your debt if you make only minimum payments.
A sample disclosure statement issued by the Federal Reserve shows that it will take a consumer 10 years to pay off a $1,784.53 balance at a 21.99% interest rate if he makes only the $53 monthly minimum payment. The sample statement also shows that if the customer instead paid $62—just $9 more a month—he could pay off the balance in three years, and save more than $1,000 in interest.
The new credit card rules can reduce the fees you pay, help you pay down your debt more quickly and plan your spending more wisely. As a result, you should be better able to live within your means.