New credit card rules have downside |
|
|
2. New fees may not get disclosed
Thanks to changes to Regulation Z, which implements the Truth in Lending Act, issuers must disclose at account opening and give 45-day advance notice of changes in APR, billing cycle and certain categories of fees -- annual fees, transaction fees (for activities such as balance transfers, cash advances and currency conversion), penalty fees and minimum finance charges. Currently, issuers have to notify cardholders only about credit limit changes if the new limit would trigger an over-limit fee or a penalty rate, says Wu.
She worries that because financial institutions must notify consumers before modifying specified fees that banks may simply craft new ones to skirt disclosure requirements. "It's the fees we can't think of right now that we're concerned about, that aren't covered by these new rules."
3. Other abuses remain
Consumer advocates largely cheer the rules, but also caution that they don't address all of the abuses in the industry. The regulations don't cap fees and rates, or create over-limit protections for consumers. If you pay a few days late, the credit card issuer can still triple your interest rate for all new charges, after providing a 45-day notice. "We think the punishment doesn't fit the crime with a lot of these hikes. Some of them are 20 percentage points (higher) and that's an awfully big punishment for being late once," says Linda Sherry, director of national priorities for advocacy group Consumer Action in Washington, D.C.
Both Wu and Sherry say they are not averse to caps for fees and rates and contend that consumers shouldn't be allowed to go over their limit -- and get charged a fee -- unless they opt in to the practice.
4. Rules don't take effect until 2010
The rules won't apply for another year and a half, giving issuers time to strategize -- and make adjustments -- to offset any future profit losses. "I think that there will be companies that take this as an opportunity to lock in their increases before the rule takes effect," says Sherry.
Then again, we might see issuers competing with each other for cardholder affinity. Bruce Cundiff, director of payments research and consulting at Javelin Strategy & Research in Pleasanton, Calif., says issuers may garner favor with cardholders "in terms of saying, 'We never practiced this, we never did universal default.'" Similar shows of goodwill may win over consumers in a time when many issuers are raising rates and lowering credit limits.
Meanwhile, a push for further reform rages on in Congress. Rep. Carolyn Maloney, D-N.Y., author of the Credit Cardholders' Bill of Rights (H.R. 5244), which passed the House but stalled in the Senate, will introduce a new Credit Cardholders' Bill of Rights in mid-January. At the time of this writing, her spokesman could not comment on how the new bill would differ from its predecessor or the regulations approved on Dec. 18.
What you can do
If you're having trouble paying your bills, call your credit card lender. Many companies have in-house workout programs that can temporarily lower your rate or suspend fees.
Those who aren't in trouble need only keep up the good work. "Watch your statements, read for changes, pay on time -- do everything you can to avoid not paying on time because you're going to be on a bad-guy list like never before," says Hammer.
|
