New Basic Credit Card Law 2.22.2010 FAQ

This is a more personal Q&A I found on Kiplingers site. I thought they were good questions and answers and think you might find them useful.

Kiplingers:

After the new credit-card legislation takes effect February 22, I know that a bank can’t raise my interest rate if I pay my credit-card bill on time, even if I am late paying other bills. But can an issuer restrict use of my card in other ways?

Yes. Under the Credit Card Accountability Responsibility and Disclosure Act, if your credit report shows late payments, your card issuer could decide you have become a risky customer and cut your credit limit, impose an annual fee or raise your interest rate on future transactions. You must receive 45 days’ notice of any rate increase.

What happens if I decide to opt out of a rate increase?

You won’t be able to use the card to make new purchases. You’ll have five years to pay off your account balance at the old rate, or you will have to continue to make monthly payments. Your new payment may not be more than twice as much as the old minimum payment.

I bought a new refrigerator using my card last spring and was able to defer payments for 12 months. The grace period ends in April. How can I be sure that my monthly payments are applied to the deferred balance and not to more recent purchases?

The CARD act requires that any payment you make over the minimum be applied first to the balance with the highest interest rate and then to balances with lower rates. However, for the two months before the grace period ends, the entire amount you pay in excess of the minimum must be applied to the deferred balance.

My credit-card company used to insist that my payment arrive by 10 a.m. on the day that it was due and charged a fee if I didn’t meet the deadline. Do the new rules offer any relief?

The CARD act imposes clear and simple payment rules. Payments are always due on the same day of the month and are considered to be on time if they are posted by 5 p.m. If the due date falls on a weekend or holiday and your payment isn’t processed until the next business day, it is still considered on time. Your card issuer may not charge you a fee to pay by phone or electronic transfer unless you receive expedited service.

Can retailers still offer customers approval for a store credit card at checkout?

Instant credit isn’t going away, but it could be a lot less instantaneous. The CARD act requires that issuers consider your ability to pay before extending credit. Previously, retailers could enter your name, address and Social Security number into the computer, get your credit score and immediately decide whether you were creditworthy. It’s unclear how the new system will work and how much financial information you will have to provide (perhaps income and any debts), but the process is likely to be more cumbersome.

Does the CARD act apply to gift cards?

Yes, although the provisions that cover them do not go into effect until August. After that, gift cards will have to remain valid for five years. Dormancy or inactivity fees will be forbidden unless the card has not been used for 12 months, and then you may be charged only one fee per month. Fees to replace expired cards that have money on them will be forbidden. You may still be charged a fee of $4 to $8 to purchase or activate a card.

Will my monthly statement look different?

Yes, it will show how much you really pay in principal and interest if you make only the minimum payment, as well as how long it will take to pay off your entire balance. It will also tell you how much you’d have to pay each month to repay the balance in 36 months and the total amount you will pay[MSOffice1] in principal and interest. Plus, the statement must conspicuously display the payment due date, any late-payment fees and the late-payment penalty rate.

I never keep those fine-print agreements that come with new credit cards. Is there a way to verify the terms and conditions of my card?

Yes, issuers must now post card agreements on their Web sites and provide a copy to the Federal Reserve Board, which will compile and post them on its Web site.

What do these new laws mean for basic credit cards?

The new credit card laws that go into effect this week are suppose to protect and help consumers. What do the experts think about it?

Huffington Post:

The credit card reforms enacted by Congress and signed by the president last year are set to take effect on Monday. Unsurprisingly, credit card issuers have already found several ways to get around the reforms.

Harvard professor Elizabeth Warren, chairwoman of the bailout oversight panel, said on Thursday that the shortcomings of the credit card reforms show the need for an independent agency that protects consumers from the financial industry.

"[The Credit Card Accountability, Responsibility, and Disclosure Act] is a good first step but it isn't enough alone," said Warren on a conference call with reporters hosted by the U.S. Public Interest Research Group. "The credit card industry and the entire consumer credit industry is broken. We need an agency, a cop on the beat that is flexible and responsive."

The House of Representatives approved a financial regulatory reform bill that includes a Consumer Financial Protection Agency. It's fate in the Senate is uncertain.

Warren described a new credit card trick to get around new restrictions on arbitrary interest rate increase and "hair trigger" rate increases for barely-late payments.

"Last week, somebody showed me a letter from their bank that raised their interest rate from 9.9 percent to 29.9 percent -- not because the person had done anything wrong or failed to pay, just a rate increase -- but then gave a so-called 'rebate' back to 11.9 percent," Warren said. "So now the company can impose its 29.9 percent rate increase anytime it wants because that is the actual rate on the card. In other words, this issuer has just figured out a way to slide slightly over from the rule of the CARD Act and avoid the intent of the rule in order to go back to the practices that Congress has deemed abusive."

That's a new one. In September, the Center for Responsible Lending issued a report titled "Dodging Reform" identifying eight new tricks credit card issuers had come up with. The Federal Reserve, when it promulgated rules for the industry to follow the reforms, squashed two of the evasions identified by the Center.

New Basic Credit Card Rules and Changes

Visa now has No Signature Required transactions

I think this new rule makes it convenient to both merchants and credit card customers, but I can see more issues that arise from this action. I think there is the possibility of more fraud and more charge backs.

I know it is just for the $25 transaction, but think about how many transactions are made below that amount. On top of that, there are many transactions done online that are risk to be disputed.

I was surprised to not have to sign a receipt at the store recently, but felt like the process is less secure.

Business Week:

Visa Inc today announced plans to offer its No Signature Required program to the majority of merchant categories in the United States beginning July 2010, making the switch to Visa digital currency even more convenient and compelling.

Under the new expanded program, for domestic transactions $25 and less, retailers can accept U.S.-issued Visa cards for purchases without requiring a cardholder signature; this program has the potential to increase speed at the point of sale and enhance customer satisfaction.

"Visa's No Signature Required program has been enormously popular with Visa cardholders and merchants in busy retail environments like quick service restaurants and coffee shops," said Bill Sheedy, president, the Americas, Visa Inc. "Innovation comes in many forms and enabling Visa cardholders to swipe their card and go at most U.S. retailers is a small, but significant advance in the ongoing migration to digital currency."

According to a Visa Inc. survey, 69 percent of participants surveyed cited either convenience or speed as the primary reason for using their credit or debit card. Visa consumer research also found that payment options influence a consumer's decision to visit a business and acceptance of payment cards has the potential to lead to stronger customer satisfaction and retention for retailers.

With the changes announced today, approximately 98 percent of all U.S. merchant category codes in the Visa system will be covered by the No Signature Required program.

Currently 26 merchant categories are eligible for No Signature Required in the U.S. They include: auto parking lots and garages; bakeries; book stores; bus lines; candy, nut and confectionary stores; car washes; dairy stores; drug stores and pharmacies; dry cleaners; fast food restaurants; laundries; local commuter transport; miscellaneous food stores; motion picture theaters; news dealers and newsstands; quick copy services; restaurants; service stations; taxicabs and limousines; tolls and bridges and video rental stores.

Offering the No Signature Required program will allow hundreds of thousands more U.S. retailers, including traditionally cash-heavy merchants such as discount stores, to enjoy greater benefit from card acceptance on low dollar transactions. These benefits include the potential for faster payment, increased sales and operating efficiencies they don't get from cash and checks.