New Credit Card Billing Rules

The bill for the new credit card rules has been approved, but the rules do not take effect until July 1, 2010. The rules sound good to me, but there are some who say it will make matters worse. They say the banks will try to make the money they will lose in other ways. But it makes more sense to me that by that time the banks would extend less credit to those who would be a high risk. See what you think by reading the following.

The new rules include five key protections for consumers who use credit cards.

1. Banks would be prohibited from increasing the rate on a pre-existing credit card balance, and must allow the consumer to pay off that balance over a reasonable period of time. The consumer would be given 45 days notice before a rate increase. The increase will typically apply to future purchases rather than current balances. However, the rate can be increased if
   • it is a variable rate and the rate index changes
   • a promotional rate expires
   • the minimum payment is not received within 30 days of the due date

2. Banks would be prohibited from applying payments in excess of the minimum in a manner that maximizes interest charges. They would no longer be able to apply all payments (over the minimum payment amount) to the balance with the lower interest rate when the borrower has balances with different interest rates due to promotional offers or cash advances, etc.
3. Banks would be prohibited from imposing interest charges using the “two-cycle” method, which computes interest on balances on days in billing cycles preceding the most recent billing cycle.
4. Banks would be required to provide consumers a reasonable amount of time to make payments. There have been class action lawsuits because of companies that send you your bill at the last minute, and then hike up your interest when your payment is late. The new rule would provide a safe harbor for banks that send periodic statements at least 21 days prior to the payment due date. In addition, a payment received by mail on the next business day after a due date, when the due date falls on a Sunday or holiday, would be considered timely. The payment must be received by 5 p.m. I have seen 2 p.m. listed on some of the current credit card rules.
5. Solicitation for new credit cards that offer multiple rates or limits, will be required to list the factors that determine whether a consumer will qualify for the lowest rate and highest credit limit.

The rules also ban the practice known as universal default. The bank will not be able to adjust your rates based on how you perform with other bills such as utilities and memberships.

There is also a new rule for bank accounts.

The new rule also provides the opportunity to opt-out of the payment of overdrafts before any overdraft fees or charges may be imposed. The bank would be required to notify you that the payment would be an overdraft.

Does this help or hurt?

I would love to see these changes now. However, there are those doing studies who say this will only make matters worse. Yes it could cut the profits of the credit card companies. I think they hurt themselves anyhow when they jack up interest rates on those who are already struggling to pay, to the point that they can no longer afford to pay. Do they actually make more, or are they forcing more people into bankruptcy?

A study by the law firm Morrison Foerster found that if the industry loses the money they make from the current rules, the reduction of credit would be at least $2,029 per account. So they are saying that there would be less availability of credit at a time when policymakers are trying to get consumers to spend money. Are they forgetting that this doesn’t take effect yet?

I believe the credit card companies extended too much credit anyhow. The real problem now is that nobody can get loans to buy major purchases. I don’t like having my credit limits cut, especially since that makes me look more in debt with my debt to limit ratio. However, I know that there is no way I could pay my bills if I maxed out all my credit cards to the limits that I previously had.

I think it is time that the consumer had more protection against the issuers of credit cards. However, I did read one comment that warrants consideration. Will those with good credit end up subsidizing those who don’t? Will the banks charge everyone higher interest rates because they can’t jack up the interest rates on people who don’t pay? As I said at the beginning, they will have time to be more selective of who they extend credit to. So wouldn’t they save money by having fewer people default? What do you think?