The rules that cover credit card lending are in a time of change, and what many see as the improvements in the industry will soon take effect. This is important because, next to medical bills, credit cards are a top reason why people wind up filing for bankruptcy protection.
An article from the Wall Street Journal highlights some of the changes that are about to take effect, and how these new regulations will impact consumers.
The Credit Card Act pushed through by the government is meant to provide more disclosures to consumers from credit card companies, to give consumers more access to information and to restrict the fees and rates that credit card companies impose on their products.
The bill, signed by President Obama about a month ago, will also establish a consumer protection agency. “Institutions are going to be forced to become more accountable to consumers,” Adam Levin, the chairman and co-founder of Credit.com, told the Wall Street Journal.
The changes, however, will not all be positive, according to the article. The new restrictions are pushing banks to find new ways to make money.
This could mean new fees added elsewhere, as well as increased interest rates to make up for the revenue they’ll lose adjusting to the new legislation.
The Credit Card Accountability Responsibility and Disclosure Act, as it is formally known, will take several steps to require credit card companies to keep consumers informed.
For example, it will now require credit card companies to provide 45 days of advanced notice to consumers before they increase interest rates, change particular fees or make any other big changes.
In what will certainly be a more dramatic requirement, banks must now provide a new graph on all credit card statements that shows a schedule of how long it would take a consumer to pay off a credit card balance if only the minimum payment is made. Companies would also have to record how much interest that consumer would end up paying.
“Make the information work,” Levin told the Wall Street Journal, referring to the fact that consumers can possibly adjust their repayment schedules to their benefit with the data provided by the credit card companies.
The Credit Card Act also entitles those who have recently been denied a credit card or gotten a poor mortgage rate to a free credit report, so that they’ll know what their score is and be able to respond accordingly. This may be helpful for people who have incorrect information on their credit score or filed bankruptcy in the past.
Recent changes to regulations have dictated that credit card companies now must provide at least 21 days for consumers to pay off their credit card bills. Payments must also be due on the same day each month.
Furthermore, credit card companies are now required to apply any payment over the due amount to the balance with the highest interest rate.
There are also changes to the way fees will be applied to accounts. Consumers now must opt-in before credit card companies can charge fees for over-the-limit transactions. For those who do opt-in, companies can only charge one fee per billing cycle, and that fee can’t be more than the overage.
The response to these and other fee regulations could be that annual fees make a comeback, according to Levin.
Credit card companies are now restricted from raising interest rates on a new account until at least 12 months have passed, unless a consumer is more than 60 days late on a payment or if an introductory rates expires.
After the first year, card companies can raise rates, but only on future purchases. This is a change from the past, according to Greg McBride, a financial analyst for Bankrate.com. “Before, card issuers would raise rates at any time for any reason,” he told the Wall Street Journal.