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Editorial
New credit card rules are not the final answer
Tuesday, February 23, 2010
The Credit Card Accountability, Responsibility and Disclosure Act of 2009, which went into effect this week was long overdue, but don't be lulled into thinking you still aren't open to being taken advantage of.
The main points of the bill:
* Card issuers cannot increase rates during the first year on new accounts, and in most cases, retroactive rate increases are prohibited.
* Payment due deadlines have to be on the same day every month.
* Consumers cannot be charged extra fees for making payments online, by phone or by mail.
* Issuers must notify cardholders of significant changes to their account terms at least 45 days before the changes take effect. They must also inform consumers about the repayment costs for outstanding balances, such as how long it will take to pay off a card if only the minimum payment is made each day.
* Consumers under the age of 21 need an adult co-signer to open a credit card, and issuers cannot entice students with incentives or gifts within 1,000 feet of a college campus.
But there's no free lunch, of course. Credit will be more costly for good customers, and issuers are sure to make up the difference by raising annual fees or inactivity fees for those who do not use their credit cards as often.
Overdraft protection will no longer be automatic, will need approval and will carry a hefty service fee.
What should a careful credit card customer do?
The answer hasn't been much changed by enactment of the CARD Act of 2009:
* Stick to fixed rates -- advance notice of changes in card terms may not apply of the card has an introductory rate or variable rate condition.
* Pay more than the minimum. The new rules require additional money paid over the minimum must be applied to the balances with the highest interest rates first.
* Read the fine print carefully, and be aware of any reduction that may be made to your credit limit.
* That goes for rewards programs as well, for which companies may be able to charge.
* Watch for higher fees connected to foreign use of cards.
* Watch your credit rating, which may be affected by canceling a card.
Some principles apply whether or not you carry a credit card, however, principles that many of us are learning for the first time since the current recession hit.
Watch your budget closely and don't spend more than you earn.