Your Credit Card Rules are Changing
By Ron Hatfield, WVU Extension Financial Management Specialist
If your credit card rates have not increased considerably in the past few months, consider yourself lucky. Many cardholders are experiencing astronomical rate increases and most often for no fault of their own. Credit card companies have undergone the practices of raising rates and closing unused accounts, among other things, in response to legislation passed by Congress in 2009, which is designed to place controls on the unbridled interest rate and fee structure practices utilized by the companies.
On May 22, 2009, President Barack Obama approved a series of rules that make major changes to practices within the credit card industry. Here is a list of the 10 key changes of the new credit card rules that will take effect on Feb. 22, 2010.
1. No interest rate increases for the first 12 months of your credit card.
You can enjoy your interest rate for at least the first year after opening your new account with two exceptions. First, your rate could increase in the first year if the creditor disclosed a rate increase when you opened the account. Second, if you don’t make the minimum payment within 30 days of the due date you’ll be subject to a penalty rate increase.
2. No interest rate increases on pre-existing balances.
If and when your interest rate does increase, the credit card issuer can’t retroactively apply the increased rate to existing balances. Only purchases made after the increase goes into effect will be subject to the new interest rate.
3. Rate increases require 45-day advanced notice, even penalty rate increases.
Banks currently get 15 days to notify you of an interest rate increase and they don’t have to notify you at all for penalty rate increases. The increased time for an advanced notice will give you more time to respond to an interest rate increase. (Rules regarding interest rate increases became effective starting Aug. 20, 2009, which is why you may have received that infamous Notice in the mail prior to the increase.)
4. No more double billing cycle finance charges.
The double billing cycle method of calculating finance charges allows credit card issuers to charge interest on balances you’ve already paid. The Federal Reserve has outlawed this expensive practice.
5. Limited fees for subprime credit cards.
Subprime credit cards can no longer charge up the cardholder’s credit limit with fees. Now, fees are limited to 50 percent of the credit limit, but only 25 percent of those can be charged when the account is opened. The remaining fees must be spread over at least five billing cycles.
6. Billing statements must be sent 21 days before payment due date.
The current rule requires billing statements to be sent within a reasonable time for the consumer to make payment. The new rule puts a time period on that “reasonable time.”
7. Payments received by 5 p.m. on the due date are on time.
The Federal Reserve recognizes that banks must have a cut-off time for accepting payments and sets that time to 5 p.m. The Fed did not specify a time zone. So, sending your payment early is still a good practice.
8. Payments received the next business day after a weekend or holiday are on time.
If your due date falls on a weekend or holiday and your credit card issuer doesn’t process payments on that day, your payment is still considered on time if it’s received by the next business day. For example, that means the Monday after a weekend or December 26 during the holidays.
9. Payments above the minimum are applied to highest interest rate balances.
The minimum payment would go toward your low-rate balance, while the remainder of your payment must be applied to the balance with the highest interest rate. This reduces your interest cost over the life of the credit card versus the alternative of applying the complete payment to the low rate balance.
10. Billing statements must detail cost of making the minimum payment.
Now, you’ll be able to see just how much it costs and how long it takes when you pay off your balance by making only the minimum payment. Credit card issuers are required to list the number of months it will take to pay off your balance with minimum payments along with the total interest you’ll end up paying.
The best practice by consumers is still to pay off credit card balances every month. Often, credit card interest is paid on balances carried over on purchases of consumable products and depreciating assets that offer no real return on the “investment.” Consumers can give themselves a 20 percent raise by not paying that money out in interest payments. Also, it is a good practice to use a zero-balance card at least every 90 days to avoid having the account closed by the card company.
Proper management of credit cards is essential to maintaining one’s good credit rating in today’s financial climate. Mismanaged credit card debt falls just behind medical bills as the number one reason for filing bankruptcy in America.
WVU Extension Service has offices in all 55 West Virginia counties, where our county agents are trusted sources for reliable, practical information. WVU Extension Service faculty and staff provide West Virginia citizens with access to the University’s research-based programs in health, nutrition, safety, agriculture, finances and 4-H and youth development.
For more information on WVU Extension Service, visit www.ext.wvu.edu, or call 304-293-5691.
This article was created using information from the following sources: