Tuesday, May 26
Posted 11 a.m.
Bankrate reporter Leslie McFadden contributed this entry.
President Barack Obama signed legislation Friday that will enact sweeping credit card reforms. The changes will take hold next February, five months ahead of weaker federal regulations that go into effect July 2010.
The House of Representatives passed the bill last Wednesday, 361-64, along with an unrelated amendment that would allow people to carry loaded, concealed firearms in national parks and wildlife refuges where permitted by state law. The Credit Card Accountability, Responsibility and Disclosure, or Credit CARD, Act will implement major changes including:
- A requirement to notify consumers 45 days in advance of any rate hike.
- A prohibition on retroactive rate increases unless the consumer is 60 days delinquent. If a customer triggers a rate increase in this manner, the previous rate would be reinstated after six months of on-time payments.
- A ban on double-cycle billing, or the calculation of interest over two billing cycles.
- A requirement that people under age 21 prove their income, have a co-signer or pass a financial literacy course to get a credit card.
- A ban on charging overlimit fees unless the customer has consented to exceeding their own credit limit.
"What the bill does in a nutshell: It says banks cannot use unfair tricks and traps to extract massive interest income and keep consumers on debt treadmills, never getting out from under their credit card debt," says Ed Mierzwinski, consumer program director for U.S. Public Interest Research Groups, or PIRG, a consumer advocacy group.
The industry cautions that these reforms -- especially the restriction on rate increases -- will result in unintended consequences for all customers regardless of credit quality. "The negatives are that in the long run you will see a decrease in the availability of credit and an increase in cost to everybody else," says Scott Talbott, the senior vice president of government affairs for the Financial Services Roundtable, an industry trade group comprised of large banks, securities and insurance firms.
According to Talbott, consumers who still qualify for cards may face more fees, including annual fees; higher rates; lower credit limits; depleted rewards programs; and shorter grace periods. Reduced float time means users will have less time to pay balances in full before interest accrues. He calls an outright end to grace periods possible but "unlikely."
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