After Congress passed credit card legislation last May, new rules governing credit card companies take effect Monday. Some changes to the way companies can set interest rates and pay schedules already took effect last August. For an idea of what consumers can expect from the new changes, we spoke to Adam Levin, chairman and founder of Credit.com, a consumer education and advocacy group. He’s also the former director of New Jersey’s consumer affairs division.
What changed today and how do they affect consumers?
ADAM LEVIN: This whole law is geared to have greater disclosure, greater fairness, greater transparency, give you more time to pay, but also give you more time to strategize.
The first important change is that [credit card companies] cannot change your interest rate on your existing balance except for three reasons.
1) Because you are 60 days late. They can still send you a notice if you are 30 days late, and they can charge you a late fee or report you to the credit reporting agency that you are late. So your credit score could be hurt.
2) They can raise your rate if you have been part of an introductory program that you signed up for that ends. But those introductory programs need to be at least six months now.
3) If your credit card is a variable rate credit card.
Other changes include: If they raise your rate on an existing balance, they must review your account every six months. And if you’ve paid properly over the six-month period, they must restore your rate to what it was before they adjusted it.
They can raise your rate for future purchases, but you have to have had your card for more than one year. They have to give you an analysis on your credit card form or statement about how long it will take you to pay off your card if you only pay the minimum payment.
Due dates have to be uniform now, as opposed to floating due dates. And within the due date, the time that the payment is due has to be uniform, and it’s end of the business day. It used to be that some [companies] said 9am, some said 1pm, some said 4pm. Most people never caught that. So if your payment showed up an hour late, you were hit with a late fee, even if you got it in by the due date. And due dates are no longer holidays or weekends.
There are two more changes that are huge.
Now, every dollar over the minimum payment must go to the highest interest rate portion in an effort to help people pay down their cards.
And then the really big change is the restriction on marketing to people under the age of 21. Now they must move at least 1000 feet away from campus – which admittedly most kids go anyway – but they cannot give a credit card to someone under 21 who cannot prove an independent ability to pay or is unable to secure a cosigner – a parent. So it does limit the marketing to students.
That’s a huge number of changes. What are the most important or significant?
ADAM LEVIN: The most significant are anything involving clearer, simpler disclosures – anything giving consumers more time to pay or strategize and anything that attacks the number one critical complaint that consumers have – and that’s that they woke up one morning to find the credit card companies had repriced their accounts – higher minimum payments, higher interest rates.
There has been some criticism of the changes taking effect today because of a number of loopholes that companies can use. What are some of the loopholes and do they render the changes less effective?
ADAM LEVIN: There are certain things [the companies] do, they have always done, and they will always be able to do. They can close your account or lower your credit limit almost anytime, practically without notice.
They can still raise rates, create new ones. These are folks who never met a fee they didn’t like. We are seeing the rebirth of the annual fee. We are seeing the inactivity fee – that’s a new one – if you don’t spend enough or as frequently. I have seen some banks say, we will charge you $60 but if you spend at least a few thousand a year, we’ll refund the $60. You will see rewards restoration fees.
Is there evidence that credit card companies have slipped in higher interest rates or higher fees ahead of the changes taking effect today?
ADAM LEVIN: They have definitely been doing it. There were a few institutions that raised rates at the end of November – because there were fears that these changes would be moved up to December 1.
Given these changes and the loopholes, are the changes taking place today a net positive?
ADAM LEVIN: Very much so. Put it in historical perspective. Two years ago, if you were to tell someone that the credit card act that we have today happened, they would have told you that universal peace was easier to achieve. But we have it! It’s positive.
But people have to remember the rules of the game: you have to pay your bills on time. You have to work down your balances. You need to check your bills everyday — the activity in your account — just to make sure the transactions are yours. These are common sense.