COMMENTARY | COLUMNISTS | GEORGE CHAMBERLIN

New credit card regulations are step in right direction

Starting Monday, a new set of rules and regulations regarding credit cards goes into effect.

However, one thing will not change -- the confusion that most consumers face when trying to understand the nuances of borrowing.

"The new rules are leading to changed behavior by card companies, and consumers would be very well advised to pay particular attention to terms and conditions, fees and rates on their cards to make sure they have the best deal," said Bill Hempel, chief economist for the Credit Union National Association.

To be sure, the rules of the game are changing. Among the provisions of the Credit Card Accountability and Disclosure Act of 2009 are new regulations that limit interest rate hikes, restrict penalties and provide protections to help people pay their bills on time.

For instance, the interest rate charged on a credit card account can never go up on your existing balance unless you have a variable rate card, a promotional rate has expired, or if you are more than 60 days late making your minimum payment. But, the new rule addresses that situation.

"Consumers who are more than 60 days late and experience a rate increase are eligible to have the original rate restored after six consecutive months of on-time payments," said Mechel Glass, of Consumer Credit Counseling Services.

Another feature declares that companies cannot randomly change the due date on payments.

Payments will now be due on the same day each month and as long as the payment is received by 5 p.m. at the bank's location that day, it cannot be considered late.

"The new rules will put an end to some of the most abusive credit-card lending practices that have trapped millions of Americans in debt and made it harder for them to make ends meet," said Pam Banks, Policy Counsel for Consumers Union. "Consumers still need to be on the lookout for unfair practices, but the new law is a big step forward."

Another important provision of the CARD Act relates to credit card activity on college campuses.

The law states that consumers under the age of 21 must have a cosigner or an independent means -- such as a job -- of repaying the debt.

And, unsolicited, prescreened credit card offers to consumers under the age of 21 are banned.

There is one other part of the new law that deals with a common activity seen at most colleges and universities.

"Credit card companies were often on campus offering free merchandise to students when they complete an application for credit," said Renee McGruder, of Money Management International. "Many students, particularly freshmen, would be excited about free merchandise and not have a clue about the long-term implications of applying for and using credit."

A study by the Consumer Federation of America finds that 85 percent of consumers are aware that the new regulations go into effect Monday.

However, they are lacking in knowledge of certain parts of the new law that can directly impact their pocketbooks.

"While the law does provide many important consumer protections, there is one glaring omission in its provisions -- cap of interest fees. If you borrow money, you should expect to pay for that privilege, but companies can continue to punish a struggling consumer by raising interest fees to excessive rates of 18 percent and beyond," said Clarky Davis, known as the Debt Diva and a credit counselor at CareOne Services.

The CFA study found that 36 percent of consumers believe that the new law caps late fees at $35, while 31 percent believe it caps interest rates at 20 percent. The law does neither.

While most organizations say that the CARD Act is a step in the right direction, they also believe that consumers still need to be proactive in managing their debt and stay vigilant in monitoring their accounts for abuse.

"These new rules will put an end to some of the most abusive credit-card lending practices that have trapped millions of Americans in debt and made it harder for them to make ends meet," said Banks of Consumers Union.

"Consumers still need to be on the lookout for unfair practices, but this new law is a big step forward."

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User Response
1 UserComments
Debbie 5:38pm February 19, 2010

As a struggling debtor, my most important new law would be a cap on interest rates! Without an actual LAW in force, the credit card companies have no conscience when it comes to taking advantage of the average American just trying to make it in this fumbled economy. Don't those companies have enough money? Why do they have to rape us for it?

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