GWEN IFILL: The new credit card regulations will mean big changes for consumers whether they pay on time or not. Card companies won’t be able to raise interest rates unless a payment is more than 60 days past due. If the borrower then pays on time for the next six months, the original interest rate kicks back in.
Also, if a borrower pays more than one interest rate — say, for cash advances and for charges — payments must be applied to the higher interest rate balance first.
The law would also limit credit for anyone under the age of 21.
Joining us to explain its impact is Nancy Trejos of the Washington Post.
NANCY TREJOS, Washington Post: Hi. Thanks for having me.
GWEN IFILL: What’s the big problem this was designed to fix?
NANCY TREJOS: Well, there was a problem with the way interest rates were being charged. Credit card companies were raising interest rates on existing balances for any time, for any reason. They were also charging excessive fees, not giving consumers enough time to make their payments, and they were doing some aggressive marketing of credit cards to college students, to people under 21.
GWEN IFILL: Is it fair to say all of this was contained in fine print mostly?
NANCY TREJOS: A lot of it was. And terms and conditions of contracts were not very clear or very hard to understand.
Law meant to help consumers
GWEN IFILL: So who's helped by the changes that this law would -- would affect? Who's helped and who's hurt?
NANCY TREJOS: Well, it intends to help all consumers, anyone with a credit card. It particularly helps those consumers who might pay on time -- or might pay a few days later, who do hold balances, and also will possibly help people who pay their balances off on time each month. I mean, so it's designed to help everyone.
GWEN IFILL: So it's designed to help...
NANCY TREJOS: Right, right.
GWEN IFILL: ... but, practically, if you're someone who, say, has a blemish on your record, you pay a little bit late, you pay that fee, the fees that the credit card companies used to make monies off of, that you now just have to be told in advance or are they prohibited from increasing your rate?
NANCY TREJOS: Well, they can only increase your rate if you're at least 60 days late in paying what you owe. But they also -- if they're going to increase your rate, they have to give you at least 45-days notice.
GWEN IFILL: Now, if you're someone who pays on time -- you're a good little doobie every single month -- and this comes into effect, you've been getting other benefits. You've been getting cash payback. You've been getting points that you can use to pay for other things. Do those things go away now? Do the rewards go away?
NANCY TREJOS: Well, you know, that's what the credit card industry is warning against. What they're saying is that it's going to become more expensive for them to lend money, it's going to become riskier for them to lend money, because they won't be able to assess a consumer's risk properly.
And so they're saying they're going to have to scale back on those rewards programs that gave you cash back or frequent flier miles. They say that they're probably going to have to return to having to charge annual fees.
What's happening now is that a lot of these banks are losing money. They've been losing revenue over the last several months, and they've already been doing some of these things. They've already been increasing interest rates on customers, even if they've paid on time. So we might see more of that happen.
Rates may rise
GWEN IFILL: I remember the days when credit card rates were at 18 percent flat fee and an annual fee.
NANCY TREJOS: Right.
GWEN IFILL: Are we going back there?
NANCY TREJOS: That's a possibility. That's what the credit card executives have said that they're going to have to do.
Because, you know, credit cards have been around for about 50 years now. And in the early years, there were laws capping interest rates in many states. There also weren't credit scores, which banks now use to determine whether or not you're going to be able to pay back your debt.
That changed in the 1980s when the usury laws were relaxed, when credit scores were created, and suddenly card companies that used to have this one-size-fits-all approach were able to tailor terms and conditions, you know, according to the person's risk.
So now they're saying, if they're not able to, you know, charge interest rates the way they have, then they might have to return to that one-size-fits-all approach.
Bill expands Fed rules
GWEN IFILL: Does the one-size-fits-all approach mean that credit becomes less available to people who need it or just more transparently available?
NANCY TREJOS: Well, there is a possibility -- the banks are saying that, if it becomes more risky for them to lend money, then they are going to have to withhold some credit.
But that said, there are some analysts out there who say, you know, the card companies have been getting such a bad rap lately. They're under a lot of scrutiny. They might actually decide to show a little bit more leniency, because they don't want it to seem like they're gouging Americans, that they're forcing them into bankruptcy.
GWEN IFILL: Didn't the Federal Reserve pass regulations addressing just this issue just in December?
NANCY TREJOS: Yes, they did that.
GWEN IFILL: What's the difference now?
NANCY TREJOS: The Senate bill actually goes a lot further; it's actually a lot stronger. The Federal Reserve did pass these regulations that do ban a lot of these practices, but the Senate is a lot stronger.
For example, the whole -- you know, not being able to increase interest rates on existing balances unless a borrower was at least 60 days late, that's not included in the Fed rules.
The ability for a consumer to redeem him or herself, you know, to pay on time for the next six months and get the old rate back, that's not included in the Fed rules.
The Fed rules also don't say anything about the college students.
Loan modifications possible
GWEN IFILL: Well, explain that. If you're a college student and you've been getting all these free cards, basically, in the mail, no more?
NANCY TREJOS: Well, it's going to be a lot more difficult for you to get a credit card, because you're now going to have to have a co-signer or you're going to have to be able to prove that you have some means of paying back that debt.
GWEN IFILL: So when does all these new rules go into effect?
NANCY TREJOS: Nine months from the day that President Obama signs it. From what I'm hearing, he'll probably sign it on Friday.
GWEN IFILL: If you are a person who is worried about this, and you have some substantial debt that you would like to pay down, and you now are anticipating that they won't be shooting your rates up, what do you do between now and then? You've got nine months. What is a person to do?
NANCY TREJOS: Well, you're right. That's a long time to wait around for some relief. And there's a lot of people -- a lot of Americans out there are hurting.
So, in the meantime, the best thing they can do is to call up their credit card company, ask to speak to a supervisor, and tell him or her that you really do want to honor your obligation, but you need some help.
A lot of these banks, a lot of these credit card companies, including some of the big ones, like Bank of America, actually have loan modification programs where they're willing to decrease your interest rate or the minimum amount that you pay each month.
So they might be willing to do that. That said, they might not. So, you know, it's worth a try.
If they won't it and if you're in trouble, then the best thing you can do is go to your credit counseling agency. There are many of them out there, so you have to be careful, because not all of them are legitimate. So you should check with the Better Business Bureau, with your local consumer protection agency, and with your state attorney general.
GWEN IFILL: Nancy Trejos of the Washington Post, thanks for helping us out.
NANCY TREJOS: Thanks a lot.