Tuesday, May 26, 2009

A Look at the Credit Card Reform Law

In just a little over 50 years credit cards have gone from something used by a few elite consumers to a major financial industry. Like any successful business this one constantly looks for new ways to generate income. But unlike most businesses the credit card industry has been especially good at developing sneaky income generators that confuse and trick and enslave their customers.

That brings us to May 22nd when President Obama signed the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009. Like all laws this one had a few transformations as it moved through the House and Senate. Here are some highlights of the final version of the law.
  • No More Retroactive Rate Increases: Rates cannot increase on existing balances due to "any time, any reason" or "universal default".
  • Restrictions of Retroactive Rate Increases Due to Late Payment: Your rate may be raised for late payment, but you must have had late payments for 60 days. After six months of on-time minimum payment, the rate must be returned to the amount before the late payments occurred.
  • First Year Protection: Contract terms must be clearly spelled out and stable for the entirety of the first year. Firms may continue to offer promotional rates with new accounts or during the life of an account, but these rates must be clearly disclosed and last at least 6 months.
  • Bills: Must be mailed a full 21 days before their due date. Billing dates cannot be changed without 45 days notice. Weekend deadlines and time stamped middle-of-the-day deadlines are banned.
  • Over-the-Limit: Over-the-limit credit purchases will require consumer opt-in. Over-the-Limit purchases can still impose fees, but won't these purchases cannot be processes without prior consumer agreement.
  • Enforces Fair Interest Calculation: Credit card companies will be required to apply excess payments to the highest interest balance first. This portion also ends double-cycle billing.
  • Disclosures: Will be posted online and written in clear terms with specific areas highlighted.
  • Pay-off: Statements will clearly indicate how long it would take to pay-off the debt if only the minimum payment is made.
  • Young Consumers: No one under the age of 18 can open a credit card on their own. College students will be limited to one card with a limit based on their income.

What this all means to consumers it that many sneaky credit card tricks that were designed to keep you paying until the grave are gone. You also cannot claim that you have no idea that paying just the minimum is keeping you debt. And you have a responsibility to read through all disclosures, which will be readily accessible and unable to fall into the shredder bin.

What this means to credit card companies is that the specific unfair practices are no longer a source of income. They claim that their profits will be squeezed, but it may also improve their loan loss. Will it end creative income generation--probably not, in time new tricks will be invented.

What it means to your Credit Union--NOT MUCH. Coors Credit Union has not participated in any of the deceitful practices addressed by the White House. Every credit union, that I know of, has always offered credit cards that operate in full disclosure and straight forward operation. Credit cards are offered by credit unions as a convenience to members and as a competitive product to enhance offerings in the market.

In the end it's nice that the government is regulating industries that take unfair advantage of their customers, but really it's the responsibility of all of us to watch out for our own welfare.

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