Credit card reforms pass
- Limits on "fee-harvester" cards. Fee-laden credit cards meant for those with subprime credit -- sometimes referred to as "fee harvester cards" -- can only charge a fee of up to half of the credit limit during the first year after issuance. Fees larger than 25 percent of the limit can't be applied in the first billing cycle but must be stretched over at least the first half of the year after the account opens. (How these cards and fees work is described in detail in this Plastic Rap blog entry.)
- More time to send payments. Card issuers must give cardholders a "reasonable" amount of time to send their payments. The guidance is that financial institutions send bills 21 days in advance of the due date.
The bad newsUnintended consequences may come back to hurt consumers once the reforms are woven into bank policy. Arnold worries that rates will rise across the board because banks will not be able to price accounts based on risk. Zero-percent promotional offers may disappear, he cautions.
Those with marginal credit may see lower credit limits and higher rates, notes Greg McBride, senior financial analyst at Bankrate.com. Borrowers with bad credit may have a tough time getting credit cards at all. He also says we may see fewer fixed-rate cards.
The rules also don't take effect until mid-2010. Financial institutions have a year and a half to figure out how to offset the lost income. Arnold expects some issuers to implement the changes early in 2009 but thinks others "will fight it tooth and nail until the last minute."
Since the rules won't dig in for some time, work on paying down balances and check your statement each month to see if your limit or rate has changed. Use cards you want to keep at least once every six months, buying something cheap and paying it off. Negotiate adverse actions with your bank. Find competitive offers on Bankrate.com.