What credit card law changes mean for consumers

The Credit Card Holders’ Bill of Rights Act of 2009 was signed into law on May 22 promising relief to financially strapped Americans. More than half of us have at least one credit card, contributing to personal debt among U.S. citizens – for credit cards, auto loans and the like – of $2.5 trillion above and beyond home mortgages.

Government figures report that U.S. credit card debt has jumped 25 percent in the past 10 years, reaching $963 billion in January. And Web site creditcard.com says the average outstanding credit card debt for households that have a card was $10,679 at the end of 2008.

“Credit is going to be more expensive and harder to get,” said Mark Foster, Director of Education for CCOA. “Now, more than ever, it is important for consumers to focus on knocking down their credit card debt and building up their savings.”

The new regulations – which won’t take effect until the second quarter of 2010 – have been widely praised, yet most people aren’t sure exactly how the changes will affect them. Here’s a look at what the act – officially, H.R. 627 – means to credit card holders:

The Good:
Introductory rates will stay in place for at least a year. And after that, companies will have to give you 45 days’ notice – instead of the current 15 – before they hike your rate.

Companies will be required to mail statements at least 21 days before the due date.

Credit card payments will go toward debts with the highest interest first – it’s been the other way around previously.

Double-billing cycles, which essentially eliminates the interest-free period for consumers who move from paying the full balance monthly to carrying a balance, are no longer allowed.

Greater disclosure from the companies is required. A big plus for consumers is they will now be told how long it will take (and how much money it will cost) to pay off a debt making only monthly minimum payments.
No one under age 21 will be allowed to have a credit card without showing an ability to pay or getting a co-signer.

The Bad:
Since the law won’t take effect for several months, companies may see the time in the interim as an opportunity to “get while the getting is good.” Interest rates are predicted to rise soon, by at least two more points by year-end. Introductory rates will go higher since the companies won’t be able to raise them for a year after.

Credit card issuers say the change will cost them at least $10 billion annually in lost revenue. Accordingly, lenders may cut back on credit, a move that could further weigh down the sputtering economy.

Even those with great credit will be affected as companies are predicted to rein in great balance- transfer offers and/or cut credit limits to conserve their cash.

Lenders may bring back annual fees and other charges to make up for lost revenue that previously came in the form of late or over-limit fees. At present, only 20 percent of card issuers have annual fees, but experts think that will change soon.

Those with credit problems will be less likely to get unsecured cards, and have to turn to secured cards, which require a deposit.

Source

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Tags: changes, credit card holders' bill of rights act of 2009, credit cards, finances, law, rules