[ETWolverine]

New credit card rules may reveal unwelcome details

Regulations aimed at making credit card policies clearer may reveal higher fees, rates

By Eileen Aj Connelly, AP Personal Finance Writer
On Thursday August 20, 2009, 7:43 am EDT

NEW YORK (AP) -- The rules your credit card company operates by will start getting much clearer on Thursday. But just because you'll know what they're up to doesn't mean you're going to like what you learn.

Regulations aimed at reining in practices like unexpected interest rate increases and credit limit cuts start with two rules. Consumers will now be given advance warning of any major changes to the terms of their accounts, and get more time to pay their balance after receiving a bill.

These small changes come ahead of more sweeping regulations that will take effect starting in February. Those touch on matters ranging from mandating reviews every six months of accounts that have had rate hikes to limiting the credit that can be offered to students.

Card companies have been gearing up for the new landscape for months, mailing consumers a spate of warnings about fee and interest rate changes. If the notices already sent are any indication, consumers may not be happy about much of the new information they receive.

Citi, for example, is in the process of informing some cardholders that it will institute an annual fee, about $30, on certain accounts.

And American Express Co. recently sent out notice it will eliminate over-the-limit fees on its consumer credit cards in October. They were dropped in response to a provision in that law that, starting in February, requires card companies to offer a way for customers to agree to pay each time a transaction triggers such a fee.

But the good news from Amex stopped there.

The letter Cynthia Vancho received last week from Amex informing her of the fee elimination also included notice that the interest rate on her card will jump to 10.24 percent from 6.99 percent. If she makes any late payments, the rate will shoot up to 27.24 percent.

And while overlimit fees are gone, Amex changed its fees for making late payments to $19 for balances under $250, and $39 for balances over that line. The prior fees were $19 for balances under $400, and $38 for balances over $400.

Vancho, who lives in Pemberton Township, N.J. sees rate and fee increases as penalizing good customers who did nothing wrong. "They're taking advantage of the situation," she said, maintaining that the hikes are being made to offset the cost of complying with the new rules. "I find it unfair for people who pay on time, pay over what is expected of them monthly and are basically good clients."

Amex spokeswoman Desiree Fish acknowledged the regulations played a part in recent rate and fee hikes. "The reason why we did it is to be responsive to the business and economic environment, which obviously included the recent regulatory changes," she said.
The company started changing rates and fees in November. Rates on certain credit cards like its Blue and Optima cards have risen on average 4 percent, while co-branded cards like airline miles cards are up an average 2 percent. "It's just part of the plan changes over the past few months that we've been making," Fish said. Citi spokesman Samuel Wang said in an e-mailed statement the new annual fees "also reflect the dramatically higher cost of doing business in our industry."

American Express and Citi are not unique. A survey by the Pew Charitable Trusts of nearly 400 credit cards offered by the 12 largest issuers in the country found that rates have gone up on average 2 percent since December. Banks are making the moves in response to an array of factors, including the regulatory changes and a spike in the number of accounts that have slipped into default as the unemployment rate has risen, said Nick Bourke, project manager of the Pew Safe Credit Cards Project.

"They're trying to manage a lot of uncertainty, because they don't know what this market is going to look like once this law takes effect," Bourke said. "And they're trying to preserve a very profitable business."

Bourke is among the industry observers who think the new law will benefit consumers.
"The things that people look at when they're looking at a credit card are: What's the interest rate? What are the rewards? and Is there an annual fee?" Bourke said. Problems cropped up because banks started incorporating things consumers didn't expect, like overlimit fees and surprise interest rate hikes. "I think the transparency that the law brings will end up saving people money," he added.

Many elements of the Credit Card Accountability Responsibility and Disclosure (CARD) Act were actually echoes of regulations the Federal Reserve crafted last year that will take effect in July, noted Gene Truono managing Director with BDO Consulting, who previously worked for both Chase cards and American Express.

The aim of all the new rules is to make credit card contracts easier for consumers to understand. Previously, the disclosures on most credit card contracts were "not comprehensible to the average consumer," he said.

In that sense, things like the requirement coming in February that banks spell out on a statement how long it will take to pay off a card making only the minimum payment, and how much interest that will cost, are bound to help consumers manage their credit better, Truono said.

"It passes what I call the 'Dolores Test,'" explaining that Dolores is his octogenarian mother. "If most consumers read them and can actually understand them, it really does have the intended effect."

Nevertheless, while the new regulations will curtail most of the practices the credit card industry has been criticized for in recent years, Truono said consumers must still stay on top of their accounts, adding, "The disclosures are only as good as the consumers who actually read them."

Copyright © 2009 The Associated Press. All rights reserved. The information contained in the AP News report may not be published, broadcast, rewritten, or redistributed without the prior written authority of The Associated Press.

Source: New credit card rules may reveal unwelcome details - Yahoo! Finance

I really don't know whether these new rules will improve anything. I'm taking a wait-and-see approach. I have only one comment at the moment:

Beware the Law of Unintended Consequences.

Comments on this issue are welcome. What do you think of the new credit card rules?

Elliot

[0rphan]

In my opinion if you can manage without using a credit card... I know that's not always possible for some people... but I think it's far better to use a debit card, that way you are only allowed to spend the monies you have in your account.. that way you eliminate the charges.

[Catsmine]

In my oppinion if you can manage without using a credit card....i know that's not always possible for some people...but i think it's far better to use a debit card, that way you are only allowed to spend the monies you have in your account ..that way you eliminate the charges.

Not completely but a great many, yes.

[tomder55]

Clearly if they raise fees and interests rates I'll adjust my usage accordingly .

My issues have been with things like debit card overdraft rules which were deceptive. I have never had an issue with the terms of my credit card. I understood them and used them to my advantage.
I have no doubt that because of these changes my relationship with the provider will also change to no one's advantage.

[ETWolverine]

clearly if they raise fees and interests rates I'll adjust my usage accordingly .

My issues have been with things like debit card overdraft rules which were deceptive. I have never had an issue with the terms of my credit card. I understood them and used them to my advantage.
I have no doubt that because of these changes my relationship with the provider will also change to no one's advantage.

Tom, you bring up an interesting point when you say that you know the terms of your credit card and understand them. I do as well.

But what use is all of these new rules of "transparency" in credit cards if the average joe just throws away his credit-card company's mailings with the rest of the junk mail and never bothers to read those mailings. And I would argue that MOST people do that. What use is it to give 6 months or 9 months or a year of warning about a rate change in a credit card mailing if nobody bothers to read the mailing?

As far as I am concerned, my credit card companies have always given ample warning about changes in terms, even if that warning is only 1 month ahead of the changes. But I was able to know about those changes because I read my "junk mail". It doesn't matter how much warning someone gets if he never bothers to read his mail.

The government has decided once again that individuals are too stupid to understand their credit card contracts and has taken action to try to repair that problem by mandating easier to understand language and longer warning times. But the problem isn't that people are too stupid, it's that people are too LAZY. And the government has again taken the burden off the individuals and placed it on the "evil" credit card companies, which just reinforces that laziness on the part of the individuals.

What ever happened to caveat emptor? What ever happened to people taking personal responsibility for their own finances instead of the government taking that burden off the people and putting it on the credit card companies.

That, I believe, is where the unintended consequences will pop up.

We'll see.

Elliot

[excon]

Tom, you bring up an interesting point when you say that you know the terms of your credit card and understand them. I do as well.

But what use is all of these new rules of "transparency" in credit cards if the average joe just throws away his credit-card company's mailings with the rest of the junk mail and never bothers to read those mailings. And I would argue that MOST people do that.

Hello El:

Hmmm. You MISS the point, ENTIRELY... I don't know how that happens with you.

I don't disagree with you that MOST people DO throw those mailings away, and very few people read them... But, THAT doesn't happen ACCIDENTALLY. It's by DESIGN. That's WHY the banks write them in such tiny little print, on such tiny little pieces of paper. The banks COUNT on people throwing it away.

That's WHY the new bill is designed to make those mailings more consumer friendly. Maybe... just MAYBE people WOULD read it then.

I suppose too, you think that all that speedy talk they do at the end of some commercials is designed to INFORM people, but they hired a fast talker by mistake... They're not PURPOSEFULLY doing it, so the consumer can't follow it. Nahhh, they wouldn't do that. Is that what you would say?? I suppose it would.

excon

[ETWolverine]

Tell me, excon, why do you assume that:

1) People are stupid and incapable of reading the English language?
2) Banks are being evil and trying to get something they haven't earned?

People are generally smart enough to read their mail. If they choose not to, that is NOT the fault of their credit card companies. People are just too lazy to read their mail. And you are encouraging the laziness.

And banks and credit card companies are not evil. They provide a service at a price. Nobody forces someone to buy that service, nobody is forcing anyone to KEEP a service they don't like. It's not like cell phone companies that lock you into 2-year contracts that you can't break. You can cancel your credit card at any time. The credit card companies aren't evil and they aren't thieves and they aren't using "trickery" to get what they want, no matter how much the media would like you to think they are.

When a credit card mailing says "We are raising your rate" it means that they are raising your rate. If it says "We will be charging a fee for late payments" it means they will be charging a fee for late payments. If they say "We will be charging an annual fee" it means there's an annual fee. What is so hard to read in the "fine print"? Why have people become too lazy to read it? And why do you encourage that laziness?

Elliot

[NeedKarma]

Why have people become too lazy to read it?

Americans are lazy, they can't be experts at everything: finance, economy, car safety, fire prevention for house insulation, medicine side effects, etc... Pure capitalism can't work anymore because the level of knowledge a person needs to make decisions has exceeded the time to learn it all. I mean have you seen the rates of obesity in the US? People do not make good decisions often.

[excon]

Hello El:



Like I said, you MISS the point, and you AIN'T interested in GETTING the point.

excon

[Catsmine]

What ever happened to people taking personal responsibility for their own

Let me change your last word, Elliot, to "actions." I truly believe that is the reason for the decline of America to the point where we need to have these discussions.

[spitvenom]

My mom taught me about credit cards when I was like 15. My wife works for a credit card company now. I know more then I have ever wanted to know about credit cards. My wife even says they print everything small because it is hard to read and they count on people not reading it.

When my wife first started at her company like 6 years ago she started in customer service and people would actually call and say to the affect "This is my money and I can do whatever I want with it!!!!" I would ask her how does she not say No it's not you idiots it's the banks money and we are loaning it to you. I think the problem is some people are lazy, some people are stupid, and some banks are deceptive.

But lets be honest if people pay on time, don't go over their limits and read everything they get they wouldn't have a problem.

[ETWolverine]

But lets be honest if people pay on time, don't go over their limits and read everything they get they wouldn't have a problem.

I think that this is the salient point.

If people did what they were supposed to do and took responsibility for what they are responsible for, there wouldn't be a problem. And we wouldn't need legislation to fix it.

Elliot

[ETWolverine]

Hello El:



Like I said, you MISS the point, and you AIN'T interested in GETTING the point.

excon

All you have proven with that photo is that if people want to read it, they can, even if it's with a magnifier. And they should.

Again, you think if it's hard to do, it ain't the average person's responsibility and the gubment should take care of it.

It is that very attitude, that concept of not having any responsibility, just let the government deal with it, that has gotten us in trouble.

That attitude created the mortgage crisis.
That attitude created the union contracts that created the mess that ruined the car companies.
That attitude has created the credit crisis.

The entire recession can be traced directly back to that "it's not my responsibility, let the government fix it" attitude.

But you can't recognize it. Moreover, you want MORE of it.

Elliot