Dec 18, 2008

New Credit Card Rules Will Protect Consumers... Eventually

After years of consumer complaints, congressional hearings, and newspaper accounts of unfair (but not illegal) practices by the credit card industry, federal regulators today (finally!) adopted new rules to protect consumers from such practices. Read about it here, here, and here.

Here are the highlights of what will be illegal as of June 1, 2010:

  1. No interest rate hikes on existing balances. Your interest rate is is locked in at the moment of purchase, and must remain so as long as you keep current on your payments (see below). Once you're 30 days late with a payment, you lose this protection. The interest rate on future purchases, of course, can be whatever rate the bank wants.
  2. No more "Universal Default". This is a biggie. This is where the credit card company raises your rate when you're late paying some other bill (for example, your car payment), and that late payment shows up in your credit report, so they raise your rate based on the so-called "universal default" clause. If your card does this, it can continue to do so for another year and a half and then no more, thanks to the rules passed today.
  3. More time required to pay between the statement date and the due date. In their quest to make payments late, some cards give you as little as 15 days from the statement date to the due date and then you're late. The new rules would require 21 days.
  4. No "Double Cycle" billing. Banks like to use your current and previous monthly balances in computing the finance charge. Under the new rule, banks can't count paid-off balances from prior months in assessing finance charges for the current month.
  5. Payments must be applied fairly. Banks can no longer apply your payments only to the lowest interest rate balances while higher rate balances, like those for cash advances, go unpaid.

All of this may seem like common sense and simple fairness. And it is. But remember, it won't be the law until July 1, 2010.

The litany of things listed here will still be legal until then... so, for banks it's woo hoo! pillage away! git while the gittin' is good and try to hijack the last of poor people's savings to cover the bank's own sorry balance sheets, the product of its own regrettable debt-fueled binges!

Fortunately, there are sites like that let you see which card companies already comply with these fairer practices.

The fact that these regulations are only now being put in place indicates the indifference that federal regulators have felt up to this point in protecting consumers. By giving billions to bankers, we know they care about them. Now they've thrown consumers a bone, too.

But we don't get it for another year and a half.

To learn more about new protections for credit cardholders, see Nolo's article New Credit Card Rules for 2010.