New Credit Card Laws Will Give Consumers a Break

It seems a lot of financial bloggers have a fairly self-righteous view of credit card debt — tending to act like anyone who ever rolls over a balance is a lunatic. However, here at Peak Personal Finance we realize that sometimes “life happens” and lots of real people sometimes have to resort to using credit cards to deal with real life issues that come up. Sure, in an ideal financial world you’d live in a tent and save everything that you earned so you could have enough savings for all emergencies, college for all of your kids and enough to retire rich. But for most of us, real life gets in the way sometimes.

With that mindset, people sometimes need to use credit cards — and even (shriek) need to roll over balances sometimes and (double shriek) sometimes are even late with payment. For those folks, the way they are treated by credit companies has been getting worse and worse for years.

For example, consumers have grown increasingly annoyed at signing up for a new credit card under a relatively good set of terms, only to get an “Amendment to Credit Card Agreement” within the first month of having the new card. These one-sided Amendments invariably take away many of the good terms, now that balances have been transfered and old accounts have been closed, etc.

Also, credit card companies have started increasing rates if someone is even one day late with payment. So, if you happen to be on vacation or just get a little too busy with life and are a day late, your 9.9% interest rate becomes 29.9% — plus they come up with a couple of different names of fees to charge you (late payment fee PLUS delinquency fee, etc.) all for being a day late.

Speaking of fees, credit card companies have also been agressive at charging over-the-limit fees. Never mind that with point-of-sale approvals (the electronic receipts you get almost everywhere) the credit card company could have just declined the transaction — instead they lead you down the primrose path, then charge you an extra $39 or so no matter whether you are $5 over your limit or not.

Such high-handed tactics used to be the province of sleazy lenders lending only to high-risk customers. However, in recent years these practices have been adopted by the most esteemed credit card companies. There were bills that were gridlocked in Congress for many years that would have cracked down on these practices, but they never got anywhere. So, recently the regulators at the Federal Reserve adopted a set of new rules designed to put an end to many of the egregious practices that credit card companies have implemented.

Some highlights of the new laws are:

Payments will be applied to those charges subject to the highest interest rates first. Currently, many cards apply payments to the lowest rates first — so right now the creditor gets to keep charging the highest interest rates until the total balance is paid off.
Eliminating “Two Cycle Billing” — a sneaky balance averaging method that can essentially have you pay interest on items that you’ve already paid off.
Mandating Reasonable Times to Pay — the way many creditors now work it, there might actually be no way for you to use regular mail to pay your credit card statement without being late.
Universal Default — the practice of raising your interest rate on a credit card if you are late on payment to any creditor (even if you are on time for all credit card payments).
Reigning in Over the Limit Fees — so a $5 charge should not incurr a $39 fee.
Longer notice periods before changes to your account terms — 45 days will be required.

Unfortunately, the new rules do not go into effect until July of 2010. The wheels of justice do turn slowly sometimes. Also, it is possible that the new rules will make it harder for customers with really bad credit to get a credit card. However, for most people, the new rules will provide some needed protection from the aggresive practices that credit card companies have been implementing in recent years.

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