Honest abe - Changes are coming!
So what exactly do the new credit card reform laws mean to me?
For the short term, they mean more shenanigans and tomfoolery from the big banks and credit card companies. The heavies in the credit card industry are not happy about these new laws. The laws don’t take effect for some time and until then, you can bet credit card issuers will do everything they can to make more money and improve the bottom line. With the big bank bailouts and overall credit crunch that comes with a recession, there is a huge amount of bad debt on the books. Tons of people missing payments and loans going unpaid. Now we add the further restrictions of a wide ranging group of new credit card laws and the banks are getting nervous. We all know what direction the brown stuff flows, so its an easy guess to know who is going to pay more. We are. The next 8-12 months will be full of fees, interest rate hikes, and credit limit chopping as the big credit card companies scramble in the remaining days of wild west lending practices.
Credit card limits and perks
One obvious way the big boys will reduce exposure to bad debt is by reducing credit card limits. The people who have plenty of money, or a steady job and good money management skills will not be affected too much. The people who for whatever reason make a late payment once or twice, or run up balances too quickly, or set off any of the unknown and known ‘flags’ will be immediately put into the ‘high risk group’ and may see their credit limits drop without warning. Credit card companies are on edge, nervous, and quick to excite. It doesn’t take much these days to get your name thrown into a pile of other questionable credit consumers. There have even been some reports of people with excellent credit who pay their balances each month getting credit limits axed. So if they see you as a risk, or as safe but not making them much money, you might be saying ‘bye-bye’ to your current high credit limits.
The days of getting flooded with zero percent interest credit card offers and other perks have been on the way out. Your favorite mileage card or ‘cash-back’ card could be changing the policy any moment. In fact, many cards have been changing policies almost weekly. Reducing, or completely doing away with the great perks and advantages like earning miles. The whole credit card and banking industry is in crisis mode so expect this to be a tumultuous time.
Watch your Banking and Credit card fees – be alert
It is no big secret that banks make money from fees. They are not just giving us money to use because they care so much about us. These fees for the last few years have become quite nasty and downright sneaky. The golden rule is “Watch them like a hawk”. This of course, is easier said than done. Who has the time to read the constantly changing policy statements and dig out the magnifying glass and to separate the interest charges from the add on fees? Not me, and likely not you either. You just do your best, and always be watching for changes. When the new laws take effect this process should become much easier.
I will be going into more detail about what exactly is in the new credit card laws over the next few weeks and months, but for now here is a sample of the changes:
- Protection from quick, sudden interest charges, and from increasing the interest rate in an accounts first year or on already existing balances.
- Banning the sneaky “two-cycle billing” method. Basically if you completely pay your balance one month, but not the next month, the crooks calculate the interest based upon both months.
- Give consumers more time to pay the credit cards. Statements must be received 21 days before the payment is due.
- Ban another sneaky practice of applying payments to lower interest rate charges first while the higher interest rate balance goes untouched.
- Require a 45 day advance notice of upcoming interest rate increases.
So as you can see, it’s all a nice step in the right direction and it will eventually improve in the consumers favor, but until this happens you need to stay vigilant and alert. There are a few things you can do in the meantime. First of all, don’t be shy. Pick up the phone and call the credit card company if you see any strange fees, interest hikes, or credit limit changes. Complacency is the banks best friend. Most people never question or call them and the ones who do are often rewarded with lower rates and better terms. If this doesn’t work, then don’t hesitate to move your balances and accounts to another lender. As consumers, we have the power to shop around and take our business elsewhere. I know when I was working fervently to get out of deep credit card debt I changed credit cards all the time and always moved from a higher rate to a lower rate. The worst thing you can do is to just watch them take advantage and collect huge fees, and charges.
