Today’s financial news is big news for anybody with credit cards or with credit card debt. It’s in regard to H.R. 627, the Credit Cardholders’ Bill of Rights Act of 2009, which passed the House on April 30, 2009 and the Senate (S.414, The Credit Card Accountability, Responsibility and Disclosure Act)
on May 19, 2009.
Today’s article is What credit card legislation means for you By: Ismat Sarah Mangla
Brief summary: Legislation that restricts “questionable” lending practices by credit card companies. The article shares the highlights of the 2 Bills, in plain language.
The original bill in question, H.R. 627, was renamed by the Senate, The Credit Card Accountability, Responsibility and Disclosure Act,or S.414, which passed by an overwhelming margin of 90-5, with 5 people not present or not voting. This bill had some changes in it from what the House sent to the Senate, so now a committee of the 2 groups will have to get together and work out the differences, so that they are in agreement. Then, it goes to the President to be signed into law, or vetoed. So, here is what this legislation means to you:
1. Due dates – In the past, credit card companies didn’t have to send you the bill until 14 days prior to the payment due date. This will now be 21 days prior to due date, and when the due dates fall on holidays or weekends, the payment will be accepted the next business day. I think this is great, because everyone needs time to plan out their budget. The holiday/weekend schedule part is interesting though, because while I agree you shouldn’t be penalized for a holiday (who knows when they are except bank employees), with regard to the weekend, you should have mailed that payment earlier, since those weekends, they do come at the same time every week!
2. Teaser rates – Both the Senate and House bill call for these “teaser rates” to be offered for at least 6 months. Well, I can’t see how this is a big deal, but more importantly, should credit card holders be falling for “teaser rates”?? Don’t fall for anything like that. Face it…if it looks like a good deal, and it came from the credit card company, it’s not. Don’t buy into the hype!
3. Cards for young adults – This is probably my favorite part of this legislation, since I saw the credit card companies hard at work (and the college students falling for it) when I was in college. The House bill doesn’t allow people under 18 to get a credit card unless the parent is the account holder, and limits college students to one credit card, with limits on their credit to a percentage of their income. But here’s the best part…The Senate bill went even further. Under the Bill from the Senate, no one under the age of 21 would be allowed to have a credit card (thank goodness), unless an adult co-signs or the person can show proof of income. Now, why do I like this so much? Well, I am very much of the opinion that people need personal responsibility, especially with money, but let’s face it…when we’re young, we don’t always know what is best for us, and we do stupid stuff. I think it is the parents responsibility to teach their children how to handle money, but if the parents don’t know how, then where does that leave the children? Most likely, in debt.
4. Retroactive rate hikes – This one can be confusing, but the gist is that if you carry a balance on your credit card (which you shouldn’t do), and then the CC company raises your rate, the new rate only applies to the purchases you make after they raise it. However, if you’re more than 30 days (House bill) or 60 days (Senate bill) late, then the credit card company can raise the rates on all of your debt. I like that it keeps them from charging higher rates on balances you carry (but again, you shouldn’t be carrying a balance), and totally agree that the CC companies should be allowed to raise the rates if you”re late. You were late. There SHOULD be penalties.
5. Penalty periods – Speaking of penalties, if you make a late payment and your rate goes up, the Senate bill says that you can reclaim your lower rate if you pay on time for 6 months in a row. I agree with this, because in 6 months you should learn your lesson. Besides, the CC companies won’t be losing any money, since the people who are consistently late will never be able to reclaim their lower rate.
6. Over-the-limit fees – This is a nice little part of the bill. Used to be, credit cards had “limits”. These would keep you from spending more then you should. The problem? People didn’t like being “declined” in public, so CC companies would just let you go over your limit, and then charge you a hefty fee. However, with the new legislation, consumers have to opt in to get over-the-limit approval, and the fees that come with it. I didn’t disagree with the fee…you shouldn’t have overcharged your card. You should have paid attention to your finances. But this is great, because you actually have to make a conscious decision, by opting in, to go over the limit. You actually have to say “yes, I want those fees”…and people will do it!
7. Gift cards – I was surprised these made it into either bill. Legislation calls for expiration limits to be no shorter than 5 years, and if there is a “dormancy fee”, it must be printed on the card. I don’t know anybody that waits more than 5 years to use a gift card, but I don’t think I’d want my money to be swiped by the gift card issuer because I’m slow.
8. Advance notification – The standard practice has been to give card holders 15 days notice of a rate change in your card. The bill changes that to 45 days. Again, I like the planning aspect of this, but if you just don’t carry a balance, then it won’t matter.
9. Payment allocation – Here’s another confusing one. Say you have a balance transfer on your card at some low rate, and purchases at a higher rate. The CC companies have been applying any payments to the lower interest rate first, so they could still rack up interest charges on you on the higher rate (i.e. more money for them). But now, any payments you make that are “in excess of the minimum amount” are applied to the higher rate first, and then the remainder of your balance in descending order. Notice the key phrase…in excess of the minimum amount, or payment. I like this because it will hopefully encourage people to pay more than the minimum amount, which is the ONLY way to get them paid off! So, you pay more toward the card, you’re rewarded, you pay the minimum, you’re not. This is good, though I think people shouldn’t need a reward for doing the right thing and being responsible.
10. Universal default – Universal default is when CC companies raise your rates on their card because they discovered that you were late on another card. Both bills eliminate this, which is good, because it’s wrong to assume that one mistake will carry over to all of your finances.
11. Account closings – Although not covered in the Senate bill, the House bill requires that the CC companies give you 30 days notice before it closes your account. I don’t know why this matters, but I don’t see it as a hassle for anybody, so I guess it’s ok.
According to the article, most of these are addressed in the Fed’s credit card regulations which are supposed to take effect July 2010. So, is this legislation necessary then, or is it that the government (the Fed is not the government…Find out what the Fed is here), specifically congress, wants to take “credit” for the new regulations, since their approval ratings are at 35.7%?? I’ll let you think on that one for a while.
Now, while I think that, in general, the government legislates too much of our lives, I am obviously, not opposed to this legislation. This is not to say that I think the credit card companies are “the ones to blame” for all the delinquent balances out there…I mean, come on, you didn’t know when your payment was due? You had no idea what would happen if you spent over your limit? You didn’t know your credit card limit, and it’s the credit card companies fault?? No, it’s not their fault that you are in debt, but they are engaged in practices that I think are a little shady, and I am happy to see that change is coming.
