New Credit Card Law Boosts Consumer Protection
Credit Card Minimum Payment Information – Part of New Legislation
Jun 7, 2009
The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act 2009: “ Marks a turning point for American consumers, ending the days of unfair (credit card) rate hikes and hidden fees,” said a White House spokesperson.
Some of the main changes for cardholders are:
- Credit card companies must ensure that promotional rates last at least six months
- Interest rates cannot be raised in the first year after the account is opened
- Penalty fees should be in proportion to the consumer’s violation
- Credit card companies should ensure that the cardholder receives 45 days’ notice of interest rate, fee and finance charge increases
- Card companies must stop arbitrary interest rate increases and “universal default” on existing balances. In universal default, a lender can change a cardholder’s account to more costly default terms from normal terms when the lender learns the account holder missed a payment on an account with another lender, even if no payments have been missed with the first lender.
Credit Card Debt
Currently Americans owe around $1 trillion on their credit cards, many will only be repaying the minimum amount demanded by the lender without realizing the dangers.
Credit Card Minimum Payments
Credit card companies love minimum payments, they add massively to company profits. For those in this position, consider the following calculation:
If a cardholder has an outstanding balance of $10.000, with an interest rate of 15% and only repays the minimum amount (based on 2%) it will take 32 years to pay off with interest charges amounting, over that period, to $15,580. (Figures obtained using a Federal Reserve credit card repayment calculator).
Returning to the new credit card legislation, with this minimum repayment scenario in mind, lenders will, from February 2010, have to tell customers how long it will take and the interest that would be charged if only minimum repayments were made. It is hoped that this new information will persuade cardholders, particularly those who are more affluent, to increase their monthly payments.
Higher Credit Card Interest Rates
In response to the new legislation, the American Bankers Association has said it would: “ Prompt banks to reinstate annual fees and higher interest rates for all card holders, an outcome which would penalize those with good credit who pay their bills on time.”
Sources:
Jennifer Liberto, Obama Signs Credit Card Crackdown, CNN Money May 22, 2009
James Pethokoukis, HSBC May Rethink US Credit Cards, Reuters May 22, 2009
BBC News Channel, New Curbs on US Credit Card Firms, May 22, 2009
White House Fact Sheet, Reforms to protect American Credit Card Holders, May 22, 2009
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