Credit card reform has taken much flak for giving card issuers plenty of time to take measures to protect themselves against some of the more important provisions of the new law. Card issuers have aggressively hiked interest rates in advance of the February 22 deadline for new rules that limit interest rate increases on existing balances. As a result, many consumers may feel that even when the new provision becomes effective, it will be too little, too late.
However, there are still reasons to celebrate. Starting 2010, cardholders can say good riddance to some of the more sneaky and onerous of credit card terms, including double cycle billing and card issuers’ ability to apply payments to the balance with the lowest interest rate first.
Over the long term, however, the most important features of the new law may well turn out to some of the less conspicuous ones, i.e. the new provisions, which mandate greater disclosures, more consumer education, and easier access to debt counseling resources.
Why? With credit cards, the general rule is this: the less you know, the more it will hurt you. There is nothing wrong with credit cards per see, it depends on how they are put to use. Unfortunately, credit card companies have made an art of making credit card terms deceptively obscure. As a result, unawares consumers end up paying through the nose for the convenience of paying with plastic.
Ultimately, greater consumer awareness will provide the best protection of all. Bearing this in mind, here is CreditCardGuide.com’s vote for the three most important rules of the new credit card reform:
1. Minimum payment disclosures. Effective February 22, 2010, credit card statements must educate cardholders about the consequences of the financial decisions they make about their credit card debt. Firstly, statements must show how long it would take to pay off the balance on the credit card, if the cardholder opts to make only minimum payments, and how much the cardholder would end up paying in interest charges.
To give cardholders a basis of comparison, that statement must also disclose how much cardholders would have to pay each month if they wish to pay off the balance in 36 months, and how much interest that would accrue. Card issuers must also clearly disclose information like year-to-date totals on interest charges and fees, as well as the reasons for those fees.
The new rules about disclosures could turn out to be perhaps the most important provision of the new law. The minimum payment is one of the most deceptive things about credit card usage and a main reason people end up with credit card debt. The low monthly payments encourage a charge-now, pay-later mentality. Up till now, many consumers had no idea just how expensive the practice of paying just the minimum monthly credit card payment is.
2. Higher minimum age, and required financial literacy education for students. Young adults in the past have been one of the most vulnerable groups of new credit card users, often lured in by aggressive marketing tactics and freebies offered in exchange for filling out a credit card application. The new law raises the minimum age for applying for a credit card (without a co-signer) to 21 years, and restricts credit card companies’ ability to market cards on campuses.
Perhaps most importantly, colleges and universities that allow card issuers to market on campus are required to provide financial literacy education for their students. Depending on how it is implemented at colleges and universities across the country, mandatory financial literacy education could turn out to offer the most effective protections for students.
3. Greater Information about Debt Management Counseling. The new law requires credit card companies to take some degree of responsibility to help consumers with high credit card debt and other financial woes. Under the law, card issuers are required to set up toll-free telephone numbers through which consumers can get information about resources for nonprofit credit counseling and debt management assistance. The Federal Reserve has been given the mandate to issue more specific guidelines to card issuers about this provision by November 22, 2009.
