Credit Card Blog

The new credit card reform laws will prohibit over-limit fees, double cycle billing, and interest rate hikes when payments are less than 60 days late. But that doesn’t mean you don’t have to watch out for any other fees. To make up for lost revenues, cardholders are likely to see other fees that are not specifically addressed in the credit card legislation.
Possible fees you should be on the look out for include:

• Fees for checking your balance
• Annual fees on credit cards that didn’t charge them previously
• Fees to participate in rewards programs
• Higher interest rates for everyone, regardless of credit scores
• An end to grace periods (interest will be charged immediately after a purchase rather than giving 20 days or so to make the payment before interest is charged)
• No 0% promotional offers 

Forbes.com writer, Michael Maiello wrote an article called “Credit Card Hypocrites”  which describes Jamie Dimon, the Chief Executive of JPMorgan Chase’s experience with the Troubled Asset Relief Program (TARP). Dimon calls the bank’s experience with TARP as traumatic, because of how the “rules changed” after the government gave the bank’s bailout money. Banks received the money and thought they could use it how they wanted, or however they saw necessary. But, in a move that Dimon complains about, the government went and changed the rules – by placing limits on how much money bank executives could receive, and by creating shareholder rights requirements, and even restricting the hiring of foreign employees.

In my favorite lines of Maello’s article, “The government changed the rules, and Dimon is traumatized. Now he knows how anyone with a Chase credit card feels. Or most any credit card, for that matter.”

Think about all the credit card users who received their credit cards with a certain dollar amount credit limit, and a certain interest rate. Think of how many of these cardholders started using their cards under those terms, only to find out three months later the interest rate was increasing, their credit limit was being lowered, and their due date was being changed. Credit card lenders have had the right to change credit card agreements whenever they wanted, and for any reason they wanted. Cardholder due dates could be adjusted without notice, causing the cardholder to make a late payment and then have to pay a late fee on top of it. The late payment triggered interest rate increases and additional penalties. Money already spent could be charged higher rates -and credit limits could be lowered BELOW the amount the borrower had already spent on the card – triggering over-the-limit fees!

Do American consumers have much sympathy for credit card executives like Jamie Dimon who are traumatized by the upcoming changes that will put a stop to these practices?

Doubtful.

Major lenders, including JPMorgan Chase, Bank of America and Citigroup oppose several pieces of the new credit card legislation. They don’t feel they should have to mail bills out 21 days before the payments are due, and if the bank is slow to process a payment they don’t feel they shouldn’t charge a late fee. A late payment is a late payment, regardless of “what” caused it to be late, right?! These banks are arguing that if they are to continue lending money to consumers they’ll need to do whatever they want to the borrowers, for any reason- as they have been doing for years.

Some of the banks are threatening to stop lending all together when the reforms take place. Will that really happen?

The new legislation regarding credit cards is designed to make credit more fair and transparent for Americans. There will be no more double cycle billing, no interest rate increases until an account has been late for 60 days or more, and credit card bills must be mailed 21 days before they’re due – among other changes.
Unfortunately, a bill sponsored by Sen. Richard Durbin (D-Ill) was not passed as part of the reform. It would have capped the total interest, fees and finance charges at 36% for all consumer credit. This is a cap currently placed on military family’s credit usage.
Payday loans are the worst abusers of interest rates, where they often make borrowers pay two or three times the amount they borrow in exchange for a few days advance on their pay. But the proposed interest rate cap would have applied to all consumer credit – payday loans, car loans, credit cards and mortgages.

This isn’t a new concept actually. In 1886, all states had interest rate caps in place. When banks began lending through credit cards in the 1950′s, banks in state’s with higher interest rates started lending to Americans living in other states where the caps were lower and charging them the higher interest rates. In 1978, The Supreme Court ruled that the National bank Act allowed lenders to charge the highest interest rate permissible in their home state – so what happened? Credit card companies moved their businesses into states that had higher interest rate caps – or none at all – so they could charge what they wanted.

It’s doubtful that anyone could successfully argue against the need for some sort of reform to some of the credit card industry practices. While some of the changes included in the upcoming reform are going to benefit everyone – like having longer statement cycles to pay your bill without penalties and no more double cycle billing – the majority of the changes aren’t as great as they seem at first glance. The problem is with more government regulation of the finance industry, it appears that people who have been responsible with their personal finances are going to end up paying for the mistakes of others.

Who will qualify for credit cards?

Not many people currently have FICO scores greater than 750, but you will need a score that high to qualify for credit cards or home loans from banks once the reform has gone through. Even people who have been responsible with their finances may currently have credit scores under 750 – but they’ll be prevented from obtaining credit just like people who continuously spend more than they can afford to pay back.

If you do qualify for a credit card, you can bet that you’ll have to pay an annual fee in order to use it. Credit card companies have to cut fees in many areas under this reform, so they will compensate by raising fees that are still allowed – like annual fees.

Kids and Parents Graduate With College Debt

The reform will not allow people under 21 to obtain credit cards unless they have a parent co-sign. College kids will convince parents to co-sign because let’s face it, parents don’t want to worry that their kid’s don’t have access to emergency funds when they’re on the other side of the country at college, right? So yes, parents will give in and co-sign and parents will start experiencing the same credit card debt as college students upon graduation.

Higher Interest Rates

The new legislation will provide a provision that prevents companies from increasing interest rates after a missed payment for at least 60 days – but after that 60 days the companies can increase the interest rate to any “reasonable” rate they want. What if they increase their interest rates to 30% or more on over due balances? Your debt could double every three years even if you make your minimum payment.

Tomorrow, President Obama will sign into law a bill that limits credit card interest rate and fee hikes. After the new legislation takes effect (in February of 2010), banks won’t be able to hike up rates until a card holder is 60 days behind on their payments. The previous interest rate must be reinstated after a card holder has made timely minimum payments for six months.

Some believe that this measure is long overdue, and that it will help card holders stay on top of their debt without adding exorbitant fees to the mix. Others believe that the new laws will usher in an era of tight credit, especially for sub-prime borrowers and young adults trying to establish credit for the first time.

The bill was passed on Wednesday by a vote of 361-64.

Also passed was a completely unrelated measure that allows guns to be carried into national parks. Rep. Carolyn Maloney, who sponsored the bill, thought that the additional gun measure was unfortunate, but seemed relieved that the credit card regulations will become law after three years of hard work on her part.

It seems like all we hear about are the credit card industry’s unfair practices and arbitrary rules. Now it’s time to greet a new trend in credit card consumer relations: the consumer-friendly credit card. (Yes, they still make those.) Here are three of the top picks:

Discover. This card issuer is lauded for its adherence to the Fed’s rules at a time when most of its competitors are trying to find ways around them. Discover gives customers a reasonable amount of time to pay their bills; doesn’t charge a fee for payments made via phone; and gives consumers the right to choose when their monthly payments are due. Its payment policies make Discover a top choice for consumers.

Wells Fargo. This lender doesn’t believe in last-minute interest rate hikes. Instead, it gives consumers 45 days’ warning before their interest rate changes. Also, Wells Fargo doesn’t participate in universal default. If you’re late on another credit card payment, your Wells Fargo interest rate will not suffer as a result. If you have a bank account with Wells Fargo, you can qualify for some of the lowest interest rates available. The Walls Fargo approach to interest rates makes this issuer a top consumer friendly contender.

Citibank. New cardholders are encouraged to apply for the Citi Forward Card. This recent offering rewards consumers for making timely payments and staying within their credit limit. These rewards come in the form of reward points and lower interest rates. The Citi Forward Card encourages good credit behavior, and can be helpful for first-time cardholders as well as consumers who are trying to rebuild their credit and change their approach to credit spending.

MasterCard’s Easy Savings Program helps cardholders save money at various merchants and retailers when they shop using their MasterCard credit card. Previously, the Easy Savings Program added the United States Postal Service to the list of merchants, giving program members an automatic 5% savings when using the US Postal Service website for Click N’ Ship supplies, including shipping labels and postage.

Now, Dunkin’ Donut lovers can take advantage of a 5% discount on any purchases made at Dunkin’ Donuts for members of MasterCard’s Easy Savings Program. Obviously, cardholders are benefiting from savings at their favorite retailers, but it’s important to note that merchants who participate in MasterCard’s Easy Savings Program are also benefiting. The rebates and discounts cardholders receive encourage people to shop there, including people who maybe wouldn’t have shopped at that retailer without the discount as they want to gain the most benefit from the Easy Savings Program membership.

MasterCard estimates that members of the Easy Savings Program spent 60% more with merchants who are part of the program.

After using his weekly video address on 5/9/09 to continue his call for credit card reform, President Obama is pushing congress to have a bill ready for signing by Memorial Day.  In the address, Obama says, “There is no time for delay. We need a durable and successful flow of credit in our economy, but we can’t tolerate profits that depend upon misleading working families. Those days are over.”

For more than a month, the President has been talking with Congress to pass legislation to prohibit most of the more aggressive fees, interest rates and penalties that credit card companies charge their cardholders.  He’s met with the leaders of the largest credit card companies to try and get them to agree with the need for such changes,but most say the proposal of such legislation will only make it more difficult to lend money and therefore have a negative affect on the recovery of the economy.

As the popular iPhone commercials say, “There’s an App for That.”

MasterCard offers a new application used on both iPhone and iPod, which helps cardholders find an ATM anywhere around the world.  The application is available at the Apple App Store, and is called The MasterCard ATM Hunter.

Not only does the technology allow cardholders to locate ATMs regardless of their physical location, but the application helps them with more advanced details, as well.  Due to the estimated 2 million people per year who contact MasterCard customer service by phone and email for information about ATM locations, the company felt creating the application would be beneficial.

Along with geographic location information, cardholders can now get information about where handicapped accessible ATMs are located, the bank charges at the ATMs nearby, where deposits can be made, which locations feature a drive thru ATM and the hours of operation for all locations on the list.  Having access to this information via their iPhone or iPod will reduce the number of customer service calls for the information.

There’s been a lot of talk about the swine flu lately. Fortunately, it’s now been determined that the H1N1 virus is no deadlier than the usual virus we battle each flu season. Still, if a virus of any sort were to result in a major pandemic, human health is not the only potential casualty. If tragedy struck, consumer spending could fall sharply. Banks could close their doors. What affect would this have on card holders?

Kimberly Palmer of the U.S. News & World Report recently quoted an interview with Dennis Moroney of TowerGroup. The research director for bank cards suggested that, in the face of a pandemic, many bankers and tellers would be too afraid to come to work. Banks would close and ATMs would remain empty, denying people access to much-needed cash.

Still, Moroney was cautiously optimistic in the interview. In the past, a pandemic could have resulted in a huge financial meltdown. Now, with the help of telecommuting and the Internet, Moroney believes that a pandemic would cause inconvenience and a disruption of service, but little else. Unless the pandemic stretched on for a prolonged period of time, he did not feel that such a scenario would have a real material impact.