New credit card rules coming in 2010

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Dear Debt Adviser,
I have always paid my credit card payments by check via mail. I was charged a late fee and my interest rate went from 6.9 percent to 30.9 percent because they posted the payment one day after the due date. In talking to a friend, she had the same thing happen to her in the same time period (November 2008). In December, my son was charged a $10 late fee; he mailed his payment on Nov. 28 last year, with a due date of Dec. 10, 2008. They posted his payment on Dec. 12. How do you handle this? How can you prove you mailed it in a timely matter?
— Michelle

Dear Michelle,
There are two points of view here. One says if you read the fine print, everything that you describe is spelled out as a legitimate practice in the “terms” section of your credit card agreement.

The other is that lenders, having given away all their money to unqualified borrowers, desperately need fee income, so they are socking it to you, your friend and your son.

Congress, the Federal Reserve, the Treasury Department’s Office of Thrift Supervision and the National Credit Union Administration appeared to be leaning toward the latter point of view when they recently proposed and passed new unfair or deceptive credit card practices rules designed to increase protections for consumers.

The rules drew more than 65,000 public comments — the highest number ever received by the Fed. But don’t expect immediate relief. The new rules take effect in July of, are you ready for this, 2010!

Here are highlights from the new federal rules on credit card firms:

New federal credit card rules
  • You must be allowed at least 21 days from the time your statement is mailed to make your payment before the date due.
  • Payments over the minimum amount due must be applied to the highest interest rate balance on the account first or pro rata among the different balances at varying interest rates.
  • Card companies must disclose interest rates charged on the account at the time of the opening of the account and specific rules that apply to increasing the disclosed rate(s). Among them, an increase in interest rate may only be applied for a late payment if the payment is received more than 30 days after the due date.
  • One rule prohibits two-cycle billing, the practice of calculating interest rates based on the balance of the previous billing cycle and the current billing cycle. In the long run, cards that use two-cycle billing cost more in interest charges than cards with single-cycle billing.
  • The rules also prohibit security deposits and fees for subprime credit cards that would amount to more than 50 percent of the credit limit in one 12-month period.

Whenever the rules are tweaked, everyone needs to be ready for unexpected consequences. I expect that tight credit will get even tighter under the new rules as lenders will be even more sensitive to lost fee and interest income.

The Fed itself has recognized that the rules may result in increased costs for most card users as well as reduced credit availability, particularly for consumers with lower credit scores or limited credit history. The answer to this is for consumers to save more and use credit less. I know it almost sounds subversive, but I urge all my readers to begin a program of savings, no matter how small. I recommend using payroll deduction to move money into an account before you get a chance to spend it.

In the meantime, to answer your question regarding your son’s late payment dilemma, he has to make sure the payment arrives before the due date and hour. Check with the card issuer to find out what those are. Using certified mail is one way to know when the payment arrives, but that is expensive and not as precise as I’d like.

In my own case, I use a free electronic bill payment service my bank offers. They guarantee the payment will arrive on time. Plus, I save a stamp, and they pay me 10 cents for every bill paid this way as a “green banking” incentive. He may have to shop around a bit, but your son should be able to find a bill paying service that will do the same. Then he can save a fee and a tree at the same time!

Good luck!