By James Limbach
ConsumerAffairs.com
August 14, 2009
The first phase of the Credit CARD Act of 2009 goes into effect August 20, 2009. But if you think that means an end to your credit card problems, Eleanor Blayney, consumer advocate for the Certified Financial Planner Board of Standards, says, "Think again."
While the Act does put a lid on some unfair practices by credit card issuers, unless you -- the consumer -- make just as many changes in the way you use your card and credit, the new legislation won't necessarily improve your personal financial situation. In fact, you could be worse off than ever.
The law does aim to put a stop to the most egregious practices of the credit card industry. But it does not make credit cheaper or more available. And many of the provisions of the law do not come into effect for six months. This could mean trouble for consumers who now depend on every dollar of their current credit limit.
Until next February, card companies can still raise the interest rates on existing balances to compensate for their loss of revenue from the economic contraction and the rise of bankruptcies and delinquent accounts. They are also canceling accounts, and cutting credit limits, both of which have the effect of damaging consumers' FICO scores, which in turn makes them targets for rate increases.
These kinds of problems are legion:
• Denise of Scotchtown, New York, tells ConsumerAffairs.com that she has three credit cards with Chase - all with low interest rates. "Last winter," she says, "I was notified that my Chase Master card rate was being increased from 9.99% to 13.24% and that I had to either accept the rate increase OR I could choose to CLOSE the account in order to keep the prevailing rate. I opted to simply transfer the balance to a new card that I got through my credit union and let that go."
• Mario of West Palm Beach, Florida, writes, "My Visa card was cancelled without notification and the way I found out is when I tried to use it. I have kept it always on-time and paid more than the minimum for at least three years."
• Christine from West Warwick, Rhode Island informed ConsumerAffairs.com of this problem: "I have two credit cards with Bank of America (BOA), one with a much lower interest rate of 10.99 percent. I called to see if I could transfer the credit card with the higher interest rate of 24 percent to the one with the lower interest rate. I had a $22,000 credit limit on that card. Instead they lowered my credit limit and now raised the interest rate from 24 percent to 27.99 percent on that card."
When the Act takes effect, fees will take over from rate increases as the means for credit card companies to stay profitable, and even good credit risks who pay in full every month, will need to be on the lookout for the instances when these fees will be charged. Blayney says you can expect to pay extra for cash advances, service calls to a credit card company employee, paper statements, or balance transfers. She offers the following advice to consumers to make sure the new legislation works in their favor:
• Keep using your cards (so they don't get cancelled) but keep your balances low relative to your credit limit. Under the new law, credit card companies must give you longer lead time between billing you and the date you have to pay. Use that extra time to get extra funds to pay down that balance.
• Start actually reading those statements before you pay and shred them. They will become the vehicle to inform you of any changes in your credit limit or rates.
• Get out your BlackBerry or day planner: Time periods and dates become more important than ever under this new law. Make sure you pay your bill on time to avoid increased late fees; if you are late with a payment, make sure it is no more than 60 days late; if you get an interest increase because you go beyond that 60 days, make an extra effort to be on time for the next six months. If you meet that time requirement, the credit card companies are required to restore the lower rate you paid before you were delinquent.
The best advice, according to Blayney, "Use your credit card for the simple, original reason it was invented: as a more convenient form of cash. Do not use it because you do not have the cash in the first place. Think of it only as a very short-term loan between the time of purchase and the time you pay your bills. Forget about airline tickets and redeemable points: your greatest reward will be a more financially secure life."
