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New Credit Card Rules - How Does It Effect You?  |
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You’ve probably already heard that Washington has passed several new rules and laws that are sure to have a dramatic effect on the credit card industry. Those changes are set to take effect next February, and are likely to provide much more protection for consumers. But those changes are also likely to make credit a little harder to obtain.
If you are currently struggling with credit card debt and other credit issues, it’s a good idea to work with a financial planner now so that you are in the best position when the new credit rules go into effect. Until then, take a look at some of the changes that are soon to take effect.
Good news for parents worried about their kids and plastic: According to United College Marketing Services, a company that markets credit cards to college students, the average college student receives between 25-50 credit card solicitations per semester. The new law will, among other things, keep credit card companies from offering free merchandise to college students in exchange for signing up for a credit card account from an offer made on or near campus. It will also keep issuers from sending new cards to students who haven’t actually applied for cards.
More time to pay: The law states that issuers will have to give customers “a reasonable amount of time” to make their payments on monthly bills. When the law goes into effect, cardholders will now have due dates at least 21 days after they are mailed or delivered. The current requirement is only 14 days.
Double-cycle billing to end. Some issuers actually calculate finance charges for a current month’s bill based on days in the previous billing cycle as well as the current one, which racks up the finance charges. That will stop once the new law starts.
You might see your rate go up, but at least you’ll get notice: In the first year you have a card the credit card company needs to give you all the terms that will apply to your card in that first year, and they’ll have to hold your rate steady unless you’re more than 30 days late in making payment. For any card account held after that one-year anniversary, issuers can raise your interest rate as long as they give you 45 days’ notice and any increase can only apply to new balances recorded after the start date of the new rate.
Your payment will go to high-interest debt first. If you have credit card balances at different rates on a single card, your payments are typically applied to the lowest-rate balance meaning your higher-rate balances will continue to accrue interest at that higher level. Once the law kicks in, the credit card companies will have two choices – to either apply your payment to the highest-rate balance or to divide the payment proportionally to each rate level. It might be worth a call to your issuer after the law becomes effective to find out which system they’re using.
More disclosure on minimum payments: If you’re making only minimum payments on credit card debt, it’s like keeping your balances frozen indefinitely. Credit card issuers will have to tell cardholders how long it would take to pay off the entire balance if users only made the minimum monthly payment. Issuers must also provide information on how much users must pay each month if they want to pay off their balances in 36 months, including the amount of interest.
Fee relief for subprime cards: Credit cards awarded to people with subprime credit typically offer low spending limits with very high fees to the extent that some users may spend half their balance on fees alone. Under the new law, the initial fees can be no more than 25 percent of the card’s credit limit, and in the first year, no more than 50 percent of the original credit limit can be used to cover fees.
Keep in mind that these provisions will likely come as a cost to more conservative users of credit. To make up the shortfalls in revenues these changes will bring, experts expect issuers to raise annual fees and cut back on rewards programs, particularly for customers who pay off their balance each month.
Information for this article provided by the Financial Planning Association (FPA). For more information about FPA, visit www.FPAnet.org or call 800.322.4237.
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