New Basic Credit Card Rules

This coming February we have many new basic credit card rules going into effect. Anyone who has a credit card or obtains one in the future will be affected.

Here are some examples that may be similar to your situation. Of course, this is just a small sampling.

Kiplingers:

Can the bank still raise my interest rate?Yes. The issuer can raise the rate on an existing card as long as you are given 45 days’ notice. If you apply for a new card, however, the issuer may not increase your interest rate for one year, and then it may charge the higher rate only on new purchases, not your existing balance. There are, however, some significant exceptions to this prohibition. Even on a new card, your rate can go up if it is based on an index that fluctuates, such as the prime rate, or if you are more than 60 days late making the minimum payment. (Your minimum monthly payment may increase, too.) Issuers have been switching cardholders from fixed interest rates to variable rates for months to take advantage of this loophole.

I changed cards to snag a low rate on balance transfers. But the rate for new purchases is much higher. What happens when I pay my bill? The CARD Act really helps here. It requires issuers to apply your payment to the balance with the higher rate. Previously, issuers automatically applied payments to the lowest-rate balance.

I lost my job, and I’m having trouble paying my mortgage. But I’ve kept up the payments on my credit card. Can the issuer cancel my card? No. Paying your mortgage or any other bill late no longer affects your credit card. Your payment record on the card itself is all that matters.

My credit score recently dropped to 680. Can I still qualify for a credit card? A few years ago, banks liberally offered credit cards to people with scores in the 650-to-680 range and then raised their rates if they paid late. With default rates hovering around 11%, however, issuers are making it more difficult to qualify for a card if your credit score is below 700. Try applying at an institution where you have a checking account, mortgage or certificate of deposit, recommends Ken Lin, of CreditKarma.com. If that doesn’t work, you could get a secured card – you’ll deposit a sum in the bank, which then becomes your credit limit. After a year of making on-time payments, you may qualify for an unsecured card.

My daughter is going off to college next fall. Can she get a credit card? It’s unlikely that she will qualify for one on her own. If she is under 21, she can obtain a credit card only if an adult cosigns or if she can prove she has adequate income to pay the bill. If you decide to cosign, you accept responsibility for all her expenditures, so you need to talk to her in advance about using her card wisely.

Credit cards harder to obtain

You may have good credit or some credit challenges, but in the past you would of been able to get a credit card albeit a higher interest rate. Now, it may not be as easy because the economy is hurting all the credit card companies.

This in turn has forced them to scale back on the amount of credit available to loan out. They simply have been forced to become more conservative in their lending practices. According to Bloomberg:

Jan. 8 (Bloomberg) -- Consumer credit in the U.S. dropped a record $17.5 billion in November as unemployment close to a 26- year high discouraged borrowing and banks limited access to loans.

The slump in credit to $2.46 trillion was more than anticipated and followed a revised $4.2 billion drop in October, Federal Reserve figures showed today in Washington. The median estimate of economists surveyed by Bloomberg News projected a decrease of $5 billion. The series of 10 straight declines was the longest since record-keeping began in 1943.

A labor market that’s shed 7.2 million jobs since the recession started in December 2007 is restraining consumer spending that accounts for about 70 percent of the economy. Fed policy makers have said tighter bank lending standards and reductions in credit lines are hampering the recovery.

So if you are turned down now for a credit card, don't take it completely personally. The credit card companies are just in their own struggles.

New Credit Card Fees

With the New Year here come new credit card laws. However, banks have already taken action to make sure they are able to make up lost revenues. In the previous posts, we discussed the interest rate increases, changing fixed rates to variable rates, and reducing credit limits and canceling cards.

If you escaped the notice of the credit card companies from taking these actions against you, then you are lucky. However, the credit card companies have made sure not to have any fees fall through the cracks. When you receive your latest statement, there will be no doubt little inserts in tiny print explaining new and extra fees for things that used to be complimentary.

Wall Street Journal:

Credit-card companies already have been racing to slip new fees and practices into customer contracts ahead of the law. Issuers are closing accounts, switching cards with fixed interest rates to variable rates and introducing cards that have an annual fee.

Christopher Moss, who regularly shops at sporting-goods chain Gander Mountain, recently was notified that he will be charged a $1 "processing fee" each time he receives a printed statement of his Gander credit-card account rather than an electronic one. The 50-year-old paralegal said he is prepared to cut up the credit card even though he likes the loyalty rewards that come with it.

"It's not like I can't afford it, but it's another little stick in the consumer's eye," Mr. Moss said.

The Gander Mountain card is issued by World Financial Network National Bank, a unit of Alliance Data Systems Corp., of Dallas. The company, which also issues credit cards for women's clothing chain Ann Taylor Stores and lingerie maker Victoria's Secret, says that the decision to charge the fee is partly tied to the costs that it will incur from the new rules.

"One requirement of the Credit Card Act of 2009 is that monthly billing statements will now have to include significantly more information pertaining to the cardholder's terms and conditions, thus increasing the amount of paper, production and postal expenses as well as having a greater environmental impact," the company said in a written statement.

Issuers also are likely to water down rewards programs and introduce fees for inactive accounts. "There are so many things that issuers can do that the Card Act doesn't touch," said Bill Hardekopf, chief executive officer of LowCards.com, a Web site that tracks the industry.

In addition to the credit-card rules, the government will crack down next year on ways banks charge overdraft fees, which are assessed when a customer overdraws an account.

New Federal Reserve rules will require banks to receive customer consent before they can be charged such a fee. That is a significant change from the current practice, in which banks typically honor withdrawals and then levy a fee if the account is overdrawn. The Fed estimates that banks generate $25 billion to $38 billion a year in overdraft fees.

The changes come against a backdrop of rising anger at the nation's banks—having been largely supported by hundreds of billions of public bailout dollars in late 2008 and 2009. One recent survey by Chicago's Bank Administration Institute found that 43% of retail-bank executives feel that consumer trust in banks has eroded in the past six months.