Both houses of Congress have now signed off on a bill to amend the Truth in Lending Act, and now it’s off to the President’s desk where the legislation is anticipated to be signed into law.  At Wallet Blog, we have been covering the news on this bill for as it has evolved.  Now that it’s headed to President Obama for approval, we’d like to provide an in-depth analysis on the bill’s major features.  They are as follows:

APR Changes on Your Existing Balances:  Credit card companies won’t be allowed to raise interest rates on your existing credit card balance unless you are more than 60 days behind on your payments to them. If you get an APR hike because you were 60 days late, you will be able to get back your original rate, by making  payments on time for 6 months in a row.

• OUR VOTE:Big fans! As long as you keep up with your payments, you will not face any surprise rate hikes. In other words, the bill allows you to plan ahead.
• IMPACT ON YOUR WALLET: Credit cards will have higher interest rates and lower credit lines than they have now. In addition, you will see fewer 0% offers (especially on balance transfers) and all credit cards will have variable rates that will fluctuate up and down based on the Prime Rate. However, and most importantly, your credit card terms will not have any surprises.  

APR Changes on New Balances:  Credit card companies will be required to give 45 days notice before increasing the interest rates. Increases made will not affect your existing credit card balance. It will only affect the credit card balance  that you accumulate 45 days after receiving the notice.

• OUR VOTE: Big Fans! Allows you to plan ahead.
• IMPACT ON YOUR WALLET: No direct impact.

Restricted Availability, if You are Under 21:  Credit card companies will be prohibited from issuing cards to consumers who are under 21, unless the application is co-signed by a parent, or guardian or proof of ability to repay the debt can be supplied.

• OUR VOTE: This is ridiculous! An adult is an adult, even when it comes to credit cards! You are capable at 18 years old to drive, go to war, carry a gun, vote, but you are not allowed to make the decision to get a credit card??
• IMPACT ON YOUR WALLET: It will take longer to build up credit, because fewer people will be able to start the process when they are 18 years old.

Prohibits Overlimit Fees:  Unless you express to your lender your desire to go over your credit limit, you will not be allowed to go over, and therefore you will not be assessed any overlimit fees.

• OUR VOTE: Big Fans! It is hard to defend charging you a fee for something that they allowed you to do and that you did not ask for. Now let’s also eliminate overdraft fees from debit cards!
• IMPACT ON YOUR WALLET: If you have Fair Credit or Bad Credit, expect big increases to the membership fees.

Fair Payment Allocation:  You may have a balance transfer on your card at one rate, while your purchases accrue interest at a higher rate. Before this legislation, credit card companies applied your payment to the balance with the lowest interest rate first, so that your balance with the higher interest rate would keep racking up interest. Now, payments must first be applied to the balance with the highest interest rate.

• OUR VOTE: Big Fans! It made no sense that consumers could not pay down their most expensive debt, without first paying down all the other debt on their credit card.
• IMPACT ON YOUR WALLET: Credit cards will have higher interest rates and there will be fewer 0% Balance Transfer Credit Cards, if any.

Prohibits Universal Default:  Credit card companies will be prohibited from raising your interest rates due to late payments or defaults on other credit cards, loans or bills.

• OUR VOTE:Big Fans! This was a highly confusing and deceptive practice. For example, I might not pay a medical bill because I am disputing it.  So, why should my credit card rate go up?
• IMPACT ON YOUR WALLET: No direct impact. Only a handful of the major issuers were using “Universal Default,” and they will now have to play by the same rules – just like everyone else.

No More Payment Fees:  The legislation also prevents companies from issuing a charge for paying a bill by phone or online.

• OUR VOTE: Big Fans! It is hard to defend “increasing” the payment when you want to make a payment.
• IMPACT ON YOUR WALLET: No direct impact  to the credit card terms. It just won’t cost anything to avoid late fees.

Prohibits Double Cycle Billing:  Credit card companies will be prohibited from calculating finance charges based on the previous month’s balance.

• OUR VOTE: Big Fans! This was a highly confusing and deceptive practice.
• IMPACT ON YOUR WALLET: No direct impact since almost all of the major issuers had stopped using this practice. Discover might be the only major credit card company using it, and thus Discover cardholders that alternated from paying their balance in full on one month to not paying it in full the next month might get fewer finance charges assessed.

Disclosure of Repayment Schedule at Minimum Amount:  Credit card companies will now be required to disclose the length of time it will take you to repay your credit card balance, assuming you only make the minimum payment amount.  They will also be required to disclose the amount of interest that will be charged over the life of repayment should the consumer only make minimum payments.

• OUR VOTE: Supportive. Consumers can get a better handle on the cost of their debt.
• IMPACT ON YOUR WALLET: No direct impact.

Extended Time for Making Payments:  You will have at least 21 days to make a payment, before you are considered late.

• OUR VOTE: Indifferent. Most major issuers already comply by this regulation.
• IMPACT ON YOUR WALLET: No direct impact.

Easier Access to Policy Terms:  Credit card companies will be required to maintain their policy terms online where they will be immediately available.

• OUR VOTE: OK. We do not believe it was a major part of the problem.
• IMPACT ON YOUR WALLET: No direct impact.

In short the credit card legislation will significantly change the way credit card companies conduct business.  Relative to the current landscape and once credit card companies reach full compliance under the new law, consumers will see smaller credit lines, higher interest rates, higher membership fees and fewer 0% offers.  Rewards offers will likely stay the same. 

While the effects of the legislation we’ve outlined here may seem wholly negative, we strongly believe that the long term effects will result in a net benefit for consumers.  This landmark legislation eliminates “gotcha” rate hikes and fees and will allow consumers to plan the selection and management of personal credit lines, without the worry of unforeseen surprises popping up along the road.