Gather Your Questions for Credit Card Reform

The Credit Card Reform Act that's been phasing in for practically ever is scheduled to firm on February 22. We've all heard dribbles and bits about the Act, but a survey by Consumer Federation of America and the Credit Union National Association found that most of us don't really know what it's all about.

The White House is hosting a Town Hall Meeting with White House Economic Advisor, Austan Goolsbee on Feb. 22 at 2pm, eastern time. You can submit your questions regarding the Credit Card Reform ahead of time.

You can also submit questions for the town hall through Twitter. Just be sure to include the hashtag #cardlaw in your Tweet.

In the meantime, here's a brief run-down of how the Act affects consumers:

• Consumers must be given 45 days' notice of any changes in the interest rates of future balances or in other key terms of a credit card account.

• Hikes in the interest rates of existing balances are generally prohibited. Exceptions: If a promotional rate expires, if the cardholder makes a late payment, or if the contracted rate was variable. That last one -- a variable interest rate -- is a key loophole that many credit card issuers have been exploiting by changing consumers to variable rate cards prior to Feb. 22.

• Consumers have the right to "opt out" of significant changes that might be imposed on their accounts. To do so, they merely have to close their accounts and pay off the existing balances within five years.

• Limitations are imposed on the issuance of credit cards to anyone under the age of 21.

• Customers who maintain monthly balances must be told how long it will take to pay off that balance if they make only the minimum monthly payments.

• Bills must be mailed at least 21 days before payment is due.

• Credit card issuers must apply any payments to balances carrying the highest interest rates first, and issuers cannot impose over-the-limit fees unless customers specifically authorize such transactions.

Credit Card Reform OUCH!

The Credit Card Reform Act of 2009 was a well-intended and long overdue attempt to stop the credit card fee insanity that imprisons many consumers. But, the Feds underestimated the creativity of their opponents, and they made a big mistake in giving the card companies warning. So what happened? Faster than reform could be implemented card companies rushed to the offense and implemented aggressive sneak attacks before they became illegal.

You became a risk
At one time card companies could raise your credit card rate if you were late on any other bill, even if you were never late on your credit card bill. It was called “universal default”. They justified this by claiming you were a risk. But since the Reform will eliminate this type of action, the card companies rushed to get rate hikes in.

They changed your minimum payment requirements
Say you signed up ABC Bank’s great balance transfer deal way back in 2008. This was a great deal because you took your high-interest balance from XYZ Bank’s card and transferred it to a really low interest card, saving you a bundle in interest rates. But suddenly the economy takes a dive and ABC Bank is suffering from loan loss and the challenges of Credit Card Reform, where are they going to look for money? Why, to you, of course! They do this by raising your minimum balance from 2% to 5%. The result is that you asked to pay a lot more each month. What if you can’t? You call ABC Bank and they’ll offer to lower your minimum payment back down at or close to the 2%, but they ski rocket your interest rate much higher than your initial great deal. This has nothing to do with your payment history, which could be perfect. You just get a lousy rate.

Your credit limit drops
A reduced credit limit can hurt your credit score because part of the formula used to calculate your score is the amount of credit available. A big gap between how much you spend and how much you have available is viewed as responsible credit handling. This is especially important if you have a need for a loan, like a mortgage for example. If a credit card suddenly reduces your credit limit, it looks like you’ve done something wrong when in reality you may not have done anything to hurt your credit.

These actions hurt many consumers deeply. So how do you fix credit card wounds? Go shopping, for a different card that is. Start with Coors Credit Union and you’ll find the following:

1. Our cards don’t offer too-good-to-be-true rates. Always be skeptical of cards that offer incredibly low rates.

2. Simple terms. The longer the terms and disclosures the more traps.

3. No account opening fees. Subprime credit cards often implemented a fee just to open the card, putting the user into a situation similar to payday loans. The Reform Act limits the amount of this fee. Coors Credit Union has never charged account opening fees and does not offer subprime credit cards.

See all the benefits that make the Coors Credit Union a trustworthy credit card.

Credit Card Companies Implement Work Arounds As Reform Gets Closer

The Credit CARD Act sets a deadline of February for many changes to credit card policies. In preparation for expected loss associated with reform card companies have been and still are making changes to protect their profits.

Bank of America, Chase and Discover Card both switched many of their cardholders from fixed to variable rates. This allows the companies to raise rates when the prime rate goes up without actually implementing rate hikes. Rates would just naturally rise and fall along with prime. Card companies raised some consumers card rates raised since the Act was announced in May to squeeze in higher rates before the deadline.

Lawmakers had recently introduced legislation to move up the effective date of new credit card reforms by two months to Dec. 1, but that’s up for debate in the House. The push for an earlier date is to disable last minute rate hikes.

Another way banks are looking to protect credit card profit is by implementing or raising annual fees. According to Bank of America new annual fees will range between $29 and $99. BoA also stated that the fees would not be coordinated with the card services, but with consumer profit. In other words, the people who pay cards late or carry a balance would pay a lower annual fee, since they contribute to the banks bottom line. The “good” consumers who don’t add interest income would be charged more.

Meanwhile, I urge you to look at your credit card terms & conditions and read all statements and notices, especially now as things are changing. And if you are looking to change, do look at your credit union offerings. Consumer Reports recently reviewed credit cards and determined that the best and most trustworthy cards were offered by credit unions, associations and specialty retailers.

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.