The new rules in the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act were meant to protect consumers from credit card companies. It sounds great…..until you understand the loopholes put in by lobbyists from credit card companies. In the name of protecting easy profits, they’ve found ways to skirt most of the protections in the bill and will profit off you in different ways.
Own a credit card? Educate yourself on the new changes and how to stay protected.
Interest Rates: Credit card companies must give you 45-days notice before raising your rates. They also can’t raise your rate for missing a payment, or during the first year of your contract. Additionally, companies must give you a chance to cancel your card before the rate is raised.
Great! But wait…:
-These new rules and protections apply only to fixed-rate cards, not to the variable-rate credit cards that make up 95% of all credit cards.
-Even if you have a fixed-rate card, they will now put an ‘expiration date’ on your intro rate, which they don’t have to explain to you, and then it can shoot up without warning.
-Even if you have a fixed-rate card with no ‘expiration date’, you’re still in trouble. Lets say you have a card with an 11% fixed APR, but in the fine print you’ll see its actually a 29% card with a ’special discount rate’ of 11%. So as soon as you miss a payment, its back to 29% because they can revoke your ‘discount’ at any time.
-Your interest rate can increase at any time if you are more than 60 days late paying your bill.
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Overlimit fees:Credit card companies cannot charge you fees for going over your limit, unless you sign up for an over-limit program.Great! But wait…:
-Instead of charging for going over your limit, they’ll charge a new fee if you hit your limit. Once you ‘touch the balance ceiling’, your card will be shut off until you pay a massive “bounced-card” bounty fee.
-If your payment is more than 60 days late, huge new penalty fees will apply.
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Payments: If you make more than a minimum payment, your money goes to the balance with the highest interest rate (often a cash-advance rate). Great! But wait…:
-This rule only applies if you pay more than the minimum due.
-It does not apply to certain cards with things like “deferred interest” plans, which are extremely common.
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No Student Baiting: Card issuers cannot give a card to a minor without either a guardian’s permission or proof that the student can pay. They cannot give merchandise away to students signing up for cards or set up within 1000 feet of a campus.Great! But wait…:
-Card companies can still use direct sales tactics on students. They are massively increasing spending on direct mail solicitations, direct online offers, and rewards programs all specifically targeted to lure new student card users.
So what should you do to protect yourself?
-Get a fixed-rate card with a low APR. Skip variable-rate cards altogether, as the interest rate is going nowhere but up.
-Avoid fixed-rate cards with red flags like ‘APR expiration dates’ and ‘discount APR rates’ and ‘deferred interest plans.’
-Always pay on time, and pay you card down well before it hits the credit limit to avoid new ‘bounce fees’ and other penalties.
Finally, ask yourself if it is worth owning a credit card. If you have a history of being financially irresponsible, maybe you should just stick to cash and/or a debit card. And even though the CARD Act will help you become more accountable with your credit cards, as you can well see there are many loopholes to this legislation. Frequent flier miles and bonus points aren’t worth the risk of going into credit card debt.
And don’t worry, there is some good news…
- Companies must provide you with information on how long it will take to pay off your balance based on the minimum payment rate.
- Companies must provide you with your monthly statement at least 21 days before the due date. Accordingly, the due date must be on the same date every month and can’t be set before 5 PM.
- Increased interest rate charges can only be applied to new charges.
Editor’s Note: Allison Berry and Sky Gilbar collaborated on this article.
