Earlier this year, Congress passed the Credit CARD Act of 2009 to standardize several aspects of the credit card industry. Changes include restricting the type and number of fees credit card companies can charge, increased transparency regarding interest rates and rate changes, standardized billing rules, and limiting the ability for some young people to qualify for credit cards based on age. The new laws are one reason why I think it can be a good idea for students to get a credit card (provided the students can manage credit cards responsibly, of course).
Credit CARD Act date moving up?
The Credit CARD Act of 2009 was scheduled to go into effect in February 22, 2010, but the Wall Street Journal is reporting that members of Congress are going to push for that date to be moved up to December 1, 2009. The new date is in response to many credit card companies making a slew of changes in advance of the new laws going into effect.
Who the Credit CARD Act affects
These changes affect everyone that has a credit card account, but it will affect people differently. People who pay their credit card balance in full each month and never carry a balance probably won’t notice much change. But if you carry a balance on your credit card, then you will likely see some affects when the new laws go active, if not sooner.
What changes will we see?
New terms, additional fees, higher interest rates, and decreased benefits. If you have a credit card, I’m sure you’ve already seen some changes in recent months. My wife and I have a total of 8 credit cards between the two of us and my business. The credit card companies representing those cards have sent us new terms for 7 of our 8 credit cards. Some of the new terms include increased rates for balance transfers, increased cash advance rates, higher interest rates, variable interest rates instead of fixed interest rates, and decreased benefits (say goodbye to automatic travel insurance and other perks).
Read the fine print. One card company recently decided to automatically “upgrade” my cash rewards credit card to their new points reward credit card if I didn’t call them to keep my old terms. What they didn’t want me to notice was that the new credit card accrues rewards at a lower rate. Of course they made it sound like they were “upgrading” me when they were actually looking to decrease my benefits. I declined the “upgrade” and kept my old card.
What to do if your credit card company changes your terms
If your credit card company makes a change to your terms, you have the option to accept or decline the changes. However, if you decline the new offer, the credit card company will then close your credit card and you will no longer be able to make new charges with it. You will also still owe them the remaining balance on your card, at the same terms you had when the account was closed.
Closing credit cards can affect your credit score. You need to be careful about closing credit cards though, because it can possibly cause a decrease in your credit score because it lowers your average age of credit as well as your available credit – two important factors in determining your FICO credit score.
If you are trying to keep your credit score up, then you may find it is better to accept the new terms and either deal with the higher interest rates or apply for a 0% balance transfer credit card to move your credit card balance to a new card with no interest.
The Credit CARD Act is not all bad
I highlighted some of the negative changes because those are the changes consumers need to be aware of and watch out for. But there are also benefits to the Credit CARD Acot of 2009. Some of the positive changes include eliminating universal default, standardizing due dates and billing notices, requiring credit card companies give 45 days notice before increasing rates, and requiring consumers to opt in to allow overdraft charges (vs. having your card declined).
Read your mail. If you own a credit card, chances are very good that you will see some new terms in the near future, if you haven’t already. Be sure to read the fine print and make an educated decision based on your situation.