The Final Credit Card Bill & Your Wallet

by Odysseas Papadimitriou on May 21, 2009

Credit Card WalletBoth 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.

Discussion

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June 5 at 05:39 am
barbaraerik
I don't think a problem with using a credit card in lieu of cash so long as you can pay if off at the end of the month. For most credit cards, you won’t pay interest while you’re still in grace. Also, if you’re not going to exercise your *credit* then you shouldn’t have credit cards.
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March 13 at 04:42 am
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March 12 at 02:29 am
Mary
On February 22,2010 the card federal credit law went into effect. I believe the CC companies are still taking advantage of consumers. Today 3/8/2010 my bill was due. I paid it by phone and was charged a fee of 14.95 because she said it would be a late fee of $39 if I didn't pay her. I find it to be absurb to still have to go thru this. Actually this acct. is closed. All I want is to pay them off.
March 8 at 21:39 pm
smmbcj
So, if I don't opt-in to overlimits, I can't make a purchase that would put me over, it gets declined, I don't go over my limit and no fee is charged. Right so far? OK, what about when all my purchases stay under my limit, then at the end of the month when interest is add my balance then goes over limit, even by a buck. Then I'll get slammed with an over limit fee. It just happened to me. Fee put me over $1.01 and that cost me $39.95.

rates were 6.99 now 15.99 jump when talk of bill began.
February 25 at 11:49 am
Odysseas Papadimitriou
If you do NOT opt-in for overlimit fees you should NEVER get assessed an overlimit fee after Feb 22nd. Please let us know if the above incident happened after the 22nd. Here is also the exact regulation in regards to your question:
"A card issuer may not impose an over-the-limit fee or charge for a billing cycle if a consumer exceeds a credit limit solely because of fees or interest charged by the card issuer to the consumer's account during that billing cycle. "
March 1 at 11:16 am
Donna
I thank the president for trying to help the everyday folks.
CC companies have taken advantage of consumers long enough
February 23 at 14:26 pm
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December 29 at 01:41 am
Patrick2004
So far my card has been paid each month and my interest rate is the same as it was when I was issued my card from Wells Fargo.
November 28 at 03:49 am
John
Even after problems I lost my credit card and the bill for new one is rude. I am thinking of investing for a wallet than for a credit card something like iwallet..http://www.iwalletusa.com
November 17 at 06:48 am
Jenni
I am so tired of experimenting with credit cards. They impose great interest rates for purchases (online) I have been comfortable doing online shopping.
November 17 at 06:47 am
Hyde
My negative experience due to this legislation and the economy with credit card issuers has been a moderate increase in interest rates (won't affect me) but most importantly my credit lines have been axed significantly by Bank of America and Chase. They claim it's due to routine utilization and portfolio risk management reviews, but we all know what's really driving up rates and fees and chopping down credit limits.
October 28 at 16:52 pm
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July 24 at 05:57 am
Jim S
I have heard, but cannot find in the text where the period wherein no interest will be charged on purchases has been eliminated.
In other words people who pay their balances in full in each billing cycle will henceforth be charged interest on purchased from the date of purchase. Is this true?
May 29 at 10:04 am
Odysseas Papadimitriou
That is not true! On the contrary the legislation increased the grace period to a min of 21 days so nothing to worry about.
May 29 at 19:48 pm
Linda J
2 months ago 2 of my credit card companies increased my rate to 25.99 and 29.99%, When I asked why they advised "we need to make money too" and you were late by 1 day 3 months ago. Does anyone know if they can now keep my rate at these rediculous percentages since they are now at these rates?
May 29 at 05:18 am
Odysseas Papadimitriou
Unfortunately they can. Check out CardHub.com to see if you can transfer your balance to another credit card. Also if you are having real trouble in paying your debt at such a rate, you might want to contact TakeChargeAmerica.gov about a Debt Management Plan -- it lower your rate a lot, but will have a negative impact on your credit and your credit card will be closed.
May 29 at 19:46 pm
marge11
I agree that overall this is a good piece of legislation for starters. If you look close, they can raise rates on variable interest rates with a 45 day notice. I doubt we will be seeing fixed rate cards in the future and they have already started raising everyones rates and cutting credit lines. Check with a Credit Union. They are CAPPED at 18% and always have been. Why can't we cap everyone?
May 24 at 14:44 pm
Odysseas Papadimitriou
Capping interest rates is a really bad idea since it will exclude a large portion of the population from being able to get a credit card. Excluding them from getting credit from legitimate sources will just force them into worse alternatives.

There was a study done in South Africa, where they found out that expensive credit is a MUCH BETTER option than no credit. What you need to realize is that if someone can not get their car fixed they will lose their job.
May 24 at 15:52 pm
David S
First, This is best comments section I have read in awhile. Overall this is a good piece of legislation (FYI, I am a Republican) that strikes the right balance. I am 100% sure the Credit Card Issuers will be able to make a solid profit and avoid the problems they are about to face with excess write-offs. In addition I stopped using credit cards 1 year ago and switched to Debit.
May 23 at 17:18 pm
Steve
David B. -- what is your issue? If you want to be allowed to go overlimit with the new law you will be able to call your credit card company and opt-in. For everyone else that wants to be declined when they go over their limit and thus avoid the fees, then we will also be protected!
May 23 at 13:00 pm
David B
This will only hurt consumers who pay things on time. I also find problematic that the companies can no longer charge over limit fees. People are told what their limit is and by the very nature of going over the limit they are breaking the original card agreement.
May 23 at 10:46 am
steppdogg
I disagree due to credit card co's who find any and every way to capitalize on the very ones who keep them in business (us) and is not always at fault when they find a invalid reason to raise our apr's
January 26 at 18:30 pm
Mary
Because technology allows credit card companies to decline a transaction that takes you overlimit. If they do not want you to go overlimit then they can just decline you, but how does it makes sense that they pretend not to want you to go overlimit and then charge you a fee for doing so, since they were the ones that approved it??
May 23 at 11:41 am
BBBB
WHY NOT JUST LET ALL THE NO WORK ETHIC FAT, LAZY, SCUMBAGS HAVE THEIR WAYS AND LET THE PEOPLE WHO WORK PAY FOR THEM IN EVERY WAY WE CAN...SCREW YOU
May 23 at 02:55 am
Voices
Self-Loathing fool. Rich or poor, changing the terms of borrowing after purchases, for unrelated reasons, was a ridiculous business practice. Unless you were willing to carry thousands of dollars in cash in your wallet each day (boom to crime), you HAD to use this morally (as in usury) disgusting financial product.
May 23 at 13:09 pm
ESPO
WHY NOT HAVE THIS BILL ALLOW THE CONSUMER TO DEDUCT ALL FEES & INTEREST PAID EACH YEAR AGAINIST THE FED TAXES PER YEAR ?
May 22 at 15:22 pm
Odysseas Papadimitriou
Because the government does NOT want to subsidize your credit card debt. They want to encourage you to buy a home, but not rack up credit card charges.
May 22 at 15:50 pm
John Jimmy's
JGische is incorrect. Credit card companies will have to mitigate the risks of not being allowed to raise rates on risky customers in other ways such as (increased) membership fees and lower credit lines. This will impact good customers. Credit card companies were able to offset the risk of bad customers by charging higher rates. Now that they cannot do that, the good customers will be having to pay for the bad customers.
May 22 at 12:55 pm
Odysseas Papadimitriou
John -- JGische is actually correct. Credit card companies will still make the same money from the people that pay their bill in full and thus they will not want to risk this very healthy cashflow that they are getting.
You are also correct that good customers will be impacted but the ones that will be impacted are the ones that were able to game the system and move from one 0% offer to another. These days are over.
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May 22 at 03:24 am
Jimmy Johns
Can you tell me one thing: does the new legislation demand that credit card companies make it clear and obvious what your APR is? I have 7 credit cards and I recently went through them to settle my accounts and make sure things were in order. NOT A SINGLE ONE OF THEM tells me my present APR anywhere on the website. this is absurd. I had to call each of them and go through the laborious CSR process with each of them in order to get it.
May 22 at 00:29 am
Odysseas Papadimitriou
Yes it does! Clear disclosures is a key piece of the new legislation.
May 22 at 15:48 pm
JGische
Anyone who pays their bills in full and on time should see no affect at all based on this legislation, since it all revolves around interest rates. If you are paying in full, you pay no interest.

Everyone in the marketplace will be better served by credit issuers being forced to play by reasonable rules. Putting so many borrowers into debt is bad for the entire economy, not just the poor shmoe who can't pay off his bills.
May 22 at 00:16 am
restin
Some people have to carry a ballance because of an unexpected health bill, you are getting it in both ends. it's not as simple as just pay the bill, when your unable to work and collect the tiny social security disability pay. the first thing to stop paying is a credit card bill, make sure you have enough for yourself.
June 26 at 20:16 pm
Dick King
I respectfully disagree.

Some percentage of the now performing accounts will become risky because of things that happen in their lives. Before this law was passed, the credit card company could attempt to lay away reserves against the few accounts that become bad risks so that they have money to cover the percentage of those accounts that become totally non-performing.

Now that we have this new law, they have to get the reserves from ALL consumers.

-dk
May 23 at 20:00 pm
TrillionsWasted
You've got to be kidding me! This bill forces people who use credit responsibly and pay their bills in full and on-time to subsidize people who overspend and pay late. How is that sound economic policy? That you could possibly see that as a "net benefit" to consumers is mindboggling. Why shouldn't BofA get to jack up your rate if they find out you're late on a payment to JPMC? You've revealed yourself to be a scofflaw who isn't a reliable credit risk;
May 21 at 22:02 pm
vfig2004
And you've revealed yourself to be an amateur financial with no brain. Legit reason for missing pay: sick, vaca, dispute, identity theft, etc. People shouldn't pay higher interest on acct A for late pay on B. Esp true if they've been on time with A.

Glad in college my econ prof didn't lower my "A" for my B in adv science.

Also - you assume people with high bal overspend. Bad. Some have lost jobs, income and unfort rely on cards to live.
May 23 at 08:52 am
Odysseas Papadimitriou
I guess you have not being attention to the fact that millions of customers that NEVER missed a payment had their interest rates increased for doing nothing wrong. It is a very sound economic policy to allow consumers to be able to make educated decisions about how much debt they can afford. Changing their rates for ANY reason does not allow consumers to make educated decsions around their debt.
May 22 at 15:54 pm

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