A guide to new credit card reforms
This week, federal regulators rolled out the biggest overhaul the credit card industry has seen in decades. What does this mean for the average consumer? Ashley Milne-Tyte reports what will be changing -- and when.
A window sticker advertising Visa and MasterCard credit cards in San Francisco (Justin Sullivan/Getty Images)
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Tess Vigeland: This week federal regulators rolled out the biggest overhaul the credit card industry has seen in decades. You know why this was necessary -- those sudden spikes in you interest rate, new fees you don't know about unless you spend your free time reading the fine print, the list goes on and on of ways the credit card industries ding us. Ashley Milne-Tyte reports on what the new guidelines means for those of us who use plastic.
Ashley Milne-Tyte: Bill Riley owns two computer repair shops in Rhode Island and Massachusetts. Last year he bought a piece of equipment on one of his credit cards.
Bill Riley: And it was a card that had been empty for almost two yeas. And it had a 12.9 percent rate. I made this purchase that used about a third of the available credit. And when I received the first statement with that purchase on it my rate had gone to 24 percent.
He paid it off as fast as he could. Then he shut down the card. Tony Troutman of California is just as exasperated with one of his card companies -- a major player in the industry. Several years ago he took out a cash advance with the company. Troutman says he knew they charged higher interest rates for a cash advance. But he didn't pick up on something else until recently.
Tony Troutman: What I just realized is all the interest they're charging me on the cash advance is being added to the balance on the cash advance, so I'm paying compounded interest. Because all my payments are being credited to my normal purchases first.
He says this billing tactic is a sneaky trick that just keeps him in debt longer than necessary. Robert Manning directs the Center for Consumer Financial Services at the Rochester Institute of Technology. He says it's about time credit card companies were brought to heel.
Robert Manning: The credit card industry has really, literally, been a wild west frontier over the last 10 years as federal regulators have increasingly turned their attention elsewhere.
Now, after thousands of consumer complaints, their attention has shifted. Travis Plunkett is legislative director of the Consumer Federation of America. He says the changes regulators announced this week should save consumers money and confusion.
Travis Plunkett: First and foremost the credit card companies aren't going to be able to arbitrarily increase your interest rate on your existing balance unless you are truly in arrears, that is unless you're 30 days late in paying.
And they'll have to give you 45 days notice before changing your interest rate. Another consumer gripe should also be less common. Bill Riley says he's sometimes dinged with late fees because there's little time between receiving his bill and its due date. And he's noticed many of the due dates seem to fall on weekends or holidays.
Riley: Which presents more opportunity to be late -- you pay additional fees, and then you can have your rate increased and another creditor sees that on your report and your rate goes up there, and it's ? it's a feedback loop.
Under the new rules companies must give customers at least 21 days to pay. It all sounds like good news for consumers. But there's a catch. The rules don't go into effect until July of 2010. Travis Plunkett says the changes are needed now since more people behind on their credit card payments today than at any time since 2002.
Plunkett: And more people are defaulting on their credit card bills and that is only going to increase in the next year or two. Now is when consumers really need this help.
Regulators say financial institutions need the next year and a half to comply. They had pushed for longer. But Robert Manning says the changes don't go far enough.
Manning: My concern of course is that what we really need is for Congress to pass and codify these changes into an act of law so that there isn't ambiguity among the different regulatory branches in how they would enforce and penalize those who violated these new rules.
The Credit Card Holders Bill of Rights passed the House in the fall, but has languished in the Senate. Manning and others hope the new Congress will take up the issue again next year.
In New York, I'm Ashley Milne-Tyte for Marketplace.
Comments
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From Accra, CA, 04/10/2009
i hope my request will be granted
From Accra, CA, 04/10/2009
I hope my request will be granted
From Dallas, TX, 01/02/2009
It is critical that regulators understand that credit card and other debt is part of the overall housing mortgage crisis. A borrower behind on his mortgage payments will effectively borrow on his credit card to make the payments on his house (that he can't come up with). Then, when he is late on his credit card, the interest rate doubles (9.9% to 19.99%). This nearly doubles his credit card minimum payment.
Now the next month or later, he gets another cash advance or shuffles normally cash purchases onto his credit card so he can make a house mortgage payment again. Voila, another late charge and another 10% onto his credit card interest rate, not counting the late fees. The late fees are not counted in calculating usury violations either, even though they may add $40 to 70 onto a $120 minimum payment.
After these two late payments, his interest rate is 24.9 to 29.9%, just below the usury limit in most states, but his monthly credit card payment is nearly triple what it was a few months earlier.
Someone has to stop this actual usury before we can solve the housing mortgage crisis.
Legislators need to prevent changes in interest rates because of late payments after a debt has been incurred. They also need to include all fees in the calculation of usury, not just interest, to prevent abuse by credit card companies.
From Marblehead, OH, 12/23/2008
This will be a step in the right direction. But more needs to be done to curb the excesses of the credit card companies. And something needs to be done on the other side of the transaction: for the merchant who accepts those cards. Sure it makes some purchases easier: but at a price. And that price is never easy to foretell. I try to decipher the statement we get from our merchant service provider (MSP). If we have 20 card transaction in a month, I may have 10-12 different rate levels for those cards, from 1.75% to 3.39%. Then there's the transaction fee, and the daily settlement fee, and the statement fees.
And the MSP tells me that we can't limit our card transactions. We're not supposed to say "no charges less than $2.00" or "no charges more than $2,000.00". If a customer wants to charge and has credit available we're supposed to take the card. On a tight deal, that 2-3% can be the difference between making a profit and just pushing merchandise out the door.
Make the MSP give us one flat percentage rate, and make them stop telling us what we have to accept. And then make them stop pushing the use of their cards, and dangling 'free' miles in front of the card holders noses.
From Oxford, MI, 12/21/2008
Why is Congress waiting until 2010 to put these consumer protections into use? We bailed out the banks already, with no restrictions whatsoever, but when the auto companies wanted a bridge loan, they had to agree to make amends/changes within 90 days. What is wrong with this picture? Why is our govt. so fond of Wall Street/white collar and not Main Street/blue collar? How can anyone survive this economic disaster for which all us taxpayers received just a measley "I'm sorry"? With two more years for the banks to run roughshod over the general population, thousands more Americans will be paying for these extravagant fees which will bring them one step closer to losing their homes.
From Midlothian, VA, 12/19/2008
If Congress feels a need to compensate credit-card companies for this new regulation of their revenue streams -- and at the same time get consumers spending again, it might do what it did prior to 1986: allow deduction of ALL interest from one's income tax, whether it's interest on car loans or on that gourmet dinner that was charged to the credit card last month.
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