Big changes in store for US credit cardholders
AP
By ANNE FLAHERTY, Associated Press Writer Anne Flaherty, Associated Press Writer – Wed May 20, 7:06 pm ET
WASHINGTON – Every American with a credit card will see sweeping changes in the market, with limits on sudden hikes in interest rates that drive consumers deeper into debt. Even cardholders who pay off their balance each month may face new annual fees or lose out on lucrative rewards programs.
Congress wrapped up the legislation Wednesday and sent it to President Barack Obama, who plans to sign it on Friday. The bill will revolutionize the market by restricting when and how a card company can raise an individual's interest rate, who can receive a card and how much time people are given to pay their bill.
In general, the new rules — which go into effect in nine months — will protect debt-ridden consumers from many of the surprise charges common in the industry, such as over-the-limit fees and costs for paying a bill by phone.
"This cements a victory for every American consumer who has ever suffered at the hands of the credit card industry," said Sen. Christopher Dodd, D-Conn., chairman of the Banking Committee.
But there will be losers too.
Banks, which oppose the legislation, will need to make up the cost somewhere, and cardholders who pay off their balance in full each month could see new annual fees and lucrative rewards programs canceled. Credit could become harder to come by too.
Some of the changes, including a requirement that cardholders receive 45-days notice before their rates are raised, are already on track to take effect in July 2010 under new regulations by the Federal Reserve. The legislation would put these changes into law and go farther in restricting when and how banks charge people and who could get a card.
For example, the bill would require people under 21 to prove first that they can repay the money or that a parent or guardian is willing to pay off their debt if they default.
The House passed the reform bill by a 361-64 vote on Wednesday. The Senate had voted, 90-5, for the measure on Tuesday.
Consumer advocates say it's up to the banks to decide what happens next.
Nick Bourke, manager of the Safe Credit Cards Project at the Pew Health Group, said companies already offering transparent pricing won't have to drastically change how they do business. Lenders could probably cover costs with small annual fees in the $15-$20 range or increase upfront interest rates, he said.
"Nothing requires pricing to go up and benefits to go down," Bourke said. "The only thing that is required is that the price offered actually reflects the cost of using the card."
Regardless of how banks respond to the bill, it's passage this week reflects both America's addiction to debt and easy credit's contribution to the economic downturn.
Last year, the Nilson Report estimated that more than 700 million credit cards were in circulation in the United States. That's more than two cards for every man, woman and child.
What's more is that many cardholders are carrying hefty balances. According to the Federal Reserve, the nation is some $2.5 trillion in debt, excluding home mortgages.
Lawmakers supporting the bill say legislation is necessary to stop a vicious cycle: A cardholder falls behind on one bill and watches helplessly as the rate spikes on their existing balance. Buried in interest fees and other charges, they spend less, which hurts local businesses.
Under the bill, a customer would have to be more than 60 days behind on a payment before seeing a rate increase on an existing balance. Even then, the lender would be required to restore the previous, lower rate if the cardholder pays the minimum balance on time for six months.
The practice of charging higher rates and fees to cardholders with risky credit was devised as a means to protect lenders against the risk of default while keeping costs low for consumers who paid their bill on time, said Edward Yingling, president and CEO of the American Bankers Association, which lobbied against the legislation.
Yingling says the new rules will limit the card companies' ability to price according to risk.
"Less credit will be available generally, which means some consumers and small businesses will not be able to obtain credit cards at all, particularly younger people and start-up small businesses," Yingling said.
Dodd, who championed the bill, said this argument is absurd and "a little like Chicken Little."
Flooded with complaints by constituents who say they are victims of abusive practices by the card companies, the Senate fast-tracked Dodd's bill and only five senators voted against it.
Two of the opposing senators — GOP Sen. John Thune and Democratic Sen. Tim Johnson — were from South Dakota, where thousands of jobs depend on the industry. Thune estimated up to 5,000 workers in the state would lose their jobs as a result of the changes.
Included in the bill is an unrelated measure by Sen. Tom Coburn, R-Okla., that would allow people to bring loaded guns into national parks and wildlife refuges.
The House approved that provision separately on Wednesday by a 279-147 vote. http://news.yahoo.com/s/ap/20090520/ap_on_go_co/us_congress_credit_cards
Congress got us again.... :mad:
Quote from: me on May 22, 2009, 04:31:02 PM
Congress got us again.... :mad:
To what are you referring? The fact that credit card companies will not be able to give cards to teenagers without an adult co-signer, or that these same companies cannot change the terms of your contract without notifying you?
Quote from: LOsborne on May 22, 2009, 07:40:52 PM
To what are you referring? The fact that credit card companies will not be able to give cards to teenagers without an adult co-signer, or that these same companies cannot change the terms of your contract without notifying you?
QuoteBut there will be losers too.
Banks, which oppose the legislation, will need to make up the cost somewhere, and cardholders who pay off their balance in full each month could see new annual fees and lucrative rewards programs canceled. Credit could become harder to come by too.
Quote
Yingling says the new rules will limit the card companies' ability to price according to risk.
"Less credit will be available generally, which means some consumers and small businesses will not be able to obtain credit cards at all, particularly younger people and start-up small businesses," Yingling said.
I can't follow your quotes. The first one is mine. Who said the others?
they are from the article she sourced.
Personally, having a credit card debt myself, and feeling very screwed by the fees and charges, I don't think it's that bad of an idea to make it more difficult for high risk individuals or businesses to get credit. I wish it had been harder for me.
Quote from: LOsborne on May 22, 2009, 08:43:41 PM
I can't follow your quotes. The first one is mine. Who said the others?
Those are from the article.... :rolleyes:
Quote from: me on May 22, 2009, 10:16:28 PM
Those are from the article.... :rolleyes:
Quote from: pariann on May 22, 2009, 09:15:02 PM
they are from the article she sourced.
Duh... I must have been suffering from acute brain farts yesterday.
Quote from: pariann on May 22, 2009, 09:15:02 PM
Personally, having a credit card debt myself, and feeling very screwed by the fees and charges, I don't think it's that bad of an idea to make it more difficult for high risk individuals or businesses to get credit. I wish it had been harder for me.
One of the cutest tricks the credit card companies pulled lately was to change the due date for payments. That way a lot of people -- even those who pay off the balance every month -- got slammed with late fees, and the companies used that fact as an excuse to bump the interest charges up. Did you know that 26 states have
no limit on how high credit card interest charges can go?
http://www.jacksonville.com/community/my_nassau_sun/2009-05-23/story/banks_use_a_loophole_to_sting_us_with_credit_card_usury
A friend of mine got caught in this sneaky little trap last month. She paid off her balance on the day of the month she always did, and found herself blessed with a big late fee, and a 15% jump in interest. Lucky for me, she mentioned it in time for me to discover my payment date had been moved up four days, so I was able to pay off my card before the new due date. It isn't just one company either. Hers was a MasterCard, mine a Discover Card.
I can't work up any tears of sympathy for the banks who will no longer be able to send cards to kids or folks with bad credit. The banks will find another way to gouge people. NSF charges are notoriously high, and since the bank waits a day before mailing a notice out, and the notice takes another day to reach the account holder in the mail, each NSF charge will be for a minimum of three days. How about the fees banks charge to use the government issued card for unemployment insurance compensation?
If my bank decides to add annual fees to my credit card, I will simply cancel it, and go back to paying by check or cash for everything.
As far a denying cards to people goes, I doubt any bank would turn down an application for a secured card. The customer has already paid the credit limit in advance on those.
No, I just can't bring myself to shed any tears for Bank of America or Wells Fargo.
Very well said Lo!!!!!
I hadn't noticed that one and I have one with BOA. Thanks for the tip I'm gonna check my due date. I have always thought Wells Fargo was a rip off. They bought one of my mortgages and tried to change the terms, which they cannot do, and their customer service sucks big time. I'm glad I'm no longer involved with them for sure.
Credit is just a euphemism for debt.