Your Guide To The (New) Maze of Credit Card Reforms

My latest on Brokelyn.com:

A credit-card-reform survival guide

by Eliza Ronalds-Hannon | 9.2.10 |


Credit-card regulation may have taken effect earlier this year, but don’t rest on your free-spending laurels just yet. The card companies are still out to get you. That’s kinda their job. Although the new rules outlaw many decades-old predatory practices, the companies have quickly come up with sneaky ways around the rules and new strategies for fleecing their customers, thus continuing to earn huge profits and the hatred of all people. We thought it’d be helpful to spell out exactly what card companies can’t do and what we all need to watch out for.Here’s what’s forbidden under the new law, the CARD Act. It’s important that you know this so that you can spot potential violations by your card issuer (such violations have already been recorded by the Consumer Federation of America):
Your credit card company cannot:
-Increase your interest rate on an existing balance, or within the first year an account is open.
-Charge you a fee for inactivity.
-Charge you a fee for making transactions that exceed your credit limit or overdraw your bank account. Instead, your purchase will simply be denied (unless you “opt in” to overdraft “protection”—aka fees. This makes overdraft protection the exception, where it had been the rule).
-Maximize your interest charges by using “two-cycle” billing (imposing interest charges on balances in a past billing cycle or bundling payments).
-Charge you a late fee without warning.
-Raise your interest rates or other fees without first giving you 45 days’ notice and the option instead to cancel the card.
-Charge you annual fees that exceed 25 percent of your credit limit (excluding penalty fees).
-Allow a minor to open an account without a co-signer or proof of means.
-For a given late fee, charge you more than $25 or the amount of your minimum payment due. The one exception allows for higher penalties if the cardholder has multiple late payments within the past six months.
Now, the loopholes—or, what to look out for:
Professional cards
These are part corporate card, part consumer card and fully exempt from the new law. Companies have sent out an unprecedented number of these cards since the law passed.
Rebate cards
These are also exempt from the new regulation.
Annual fees
Even though annual fees can’t total more than 25 percent of your credit limit, 25 percent can be a lot. And many companies are making sure to get as close as possible to that 25 percent, even if their previous annual fees were low. (The 25 percent cap on annual fees does not apply to penalty fees, such as late payment fees, or to “processing” fees, which are charged upon initiating the account.)
Balance-transfer fees and minimum finance charges
These apply when you transfer your credit-card balance to get a lower interest rate; and to balances that remain on the card month-to-month (respectively).
Unfair calendar-driven late fees
That nearly criminal late fee if the due date of your payment falls a holiday or weekend, when the bank doesn’t process payments.
For more detail, and some history behind the legislation, see the suggestions here, here and here.