The New Credit Card Debt Laws - What You Need to Know

The New Credit Card Debt Law Isn't All Good

The new credit card debt laws have some good things for consumers, but often laws restricting business in a free market can have unintended consequences. The new credit card debt law called The Credit Card Accountability Responsibility and Disclosure Act of 2009 was signed by the President earlier this year. It will not take effect until February 22, 2010. When it takes effect it will correct certain questionable business practices of the credit card issuers, but what about the effects on those customers who are responsible with their credit? There are some potential negative outcomes of the new credit card debt law legislation for them.

I have another Hub, The New Credit Card Laws 2009 which explores the positives for consumers. If you are interested in how this new credit card law could possibly be bad continue reading here.

New credit card debt law
New credit card debt law

The new credit card debt law is supposed to amend the Truth in Lending Act and targets unfair and deceptive practices by credit card companies. The legislation includes restrictions on retroactive rate increases, bans double-cycle billing, and limits how issuers are allowed to apply payments to balances with multiple rates on one credit card account. While many consumers are happy with the new laws, there are many others who say the credit companies will make up the difference by cutting rebates and awards programs along with charging annual fees, effectively penalizing those who have been responsible users of credit.

Under The New Credit Card Law Banks Will Raise Fees and Restrict Credit

Since the new credit card debt law will end the practice known as universal default (which is where a creditor could raise your rate if you default on another credit obligation, even if you always paid the current creditor on time), banks say they will have to make up their losses some other way. These losses the credit card companies are claiming they will suffer are mostly due to not being able to retroactively charge interest on existing balances. Under the new law issuers are required to give 45 days notice of rate increases and aren't allowed to increase your rate at all in the first 12 months of a new card except under certain defined circumstances such as default on payments or a teaser rate expiration.

The unfortunate side effect of this for the consumer who does a good job managing their credit is that they may see their rates going up. Some of you may have already gotten notices of rate increases from your credit card issuers. Many say that this will result in those who are responsible with their credit subsidizing those who are not. Another increase could be in the various fees that are charged. Where currently a credit card issuer charges, for example, $39 for late fees, they may raise this to $50 or more. If you sometimes forget to pay or have trouble making payments by the due date, then be prepared for it to cost you more when you are late. It may also be more difficult to get approved for a credit card in the future due to the banks needing to make up for the losses incurred by those who default and are written off so the criteria for approval will likely be tighter.

Banks Will Try to Get Around The New Credit Card Debt Laws

As part of the new credit card debt laws Regulation Z, which implements the Truth in Lending Act will be changed requiring issuers to provide certain disclosures upon opening a new account and at least 45 days notice prior to certain changes. The required notifications include changes in APR and billing cycle as well as certain categories of fees. These include annual fees, transaction fees (for activities such as balance transfers, cash advances and currency conversion), penalty fees and minimum finance charges. Issuers are also only required to notify cardholders about changes to their credit limits if the new limit would trigger an over the limit fee or a penalty rate. There is concern that since the fees that require notification are in the specifics of the legislation, that credit card companies may just come up with new ones to get around the disclosure requirements.

Congress could have enacted the new credit card debt laws immediately if they wanted to. Instead, they wrote the bill to give the credit card companies 9 months to comply with the provisions. This gives the credit card companies plenty of time to raise rates, increase fees, and virtually whatever else they want to do to customers that is currently legal, effectively nullifying some of the effectiveness of the regulations.

One thing many issuers are doing now is changing how the required minimum monthly payment is figured. Often consumers are only looking at the annual percentage rate on a card, but depending on the balance, the percentage requirement specified for the allowed monthly minimum payment may make much more difference in how expensive a card is. For example: you carry a $10,000 balance and the minimum monthly payment is figured on 2% of that balance. You're required to pay $200 as your minimum regardless of your annual percentage rate. Let's suppose, as is already happening, that rate goes up to 5%. Your minimum monthly payment just went up two and a half times to $500. You may end up defaulting and hurting your credit before the new credit card debt laws have a chance to take effect.

Consumer advocates are largely in favor of the new rules, but say that they don't cover all of the abuses in the industry. Fees and rates are not capped so if you do pay late after the first year the credit card companies can raise your interest rate for all new charges, as long as they provide a 45-day notice. Since there is not a cap, you could be paying a rate triple the previous rate, and late fees could end up being $100 per occurance.

It is possible that, while these negatives remain, the net benefit to consumers could be positive if credit card issuers promote positive, customer-friendly practices. They may have to settle for lower profits in exchange for greater customer goodwill, but in the long run more customers certainly shouldn't hurt the bottom line. Like most other things in our current system, competition is usually better for the consumer. Changing the rules just means that credit card companies have to adjust to stay ahead. The ones that can adapt are the ones that will win more customers and a enjoy a healthier balance sheet.

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Comments 22 comments

heresplanb profile image

heresplanb 7 years ago

Great hub on credit card and dept laws these are differently things we need to know.

Mighty Mom profile image

Mighty Mom 7 years ago from Where Left is Right, CA

Like any other attempt to protect the consumer, this will end up hurting us as much as helping. Credit cards are evil. Evil!

Jeffrey Neal profile image

Jeffrey Neal 7 years ago from Tennessee Author

So true. On both counts.

prettydarkhorse profile image

prettydarkhorse 7 years ago from US

oh as usual this is very informative again and the new law, lets just wait and see the effect...

Jeffrey Neal profile image

Jeffrey Neal 7 years ago from Tennessee Author

Thank you. Yes, there are both positives and negatives to many laws. Thanks for stopping by.

prasetio30 profile image

prasetio30 6 years ago from malang-indonesia

It give me new experience about credit card law. Because it untouchable in my country. Just debt collector who act when the problem happen. nice hub

Jeffrey Neal profile image

Jeffrey Neal 6 years ago from Tennessee Author

Thanks for visiting prasetio. Sometimes the laws are a double-edged sword, but I hope things in your country remain fair or improve.

Miss Belgravia profile image

Miss Belgravia 6 years ago from Fort Worth, Texas

Good hub, with lots of helpful information. I would only add that the solution for people who see the terms on their credit cards change unfavorably is to stop using the cards and pay them off. You don't have to accept the new terms. If you get a notification that your rate is increasing, an annual fee is being added, etc., notify the credit card company that you want to cancel the card and pay it off on the original terms. This may lower your credit score temporarily by lowering your debt-to-credit ratio, but paying extortion to keep your credit score up doesn't make sense in the long run. The credit card companies are not trying to make up for their "losses." They are making record profits, and just want to squeeze as much money out of their customers as possible. I don't have any hope that they will become customer-friendly anytime soon.

melissa 6 years ago

I agree with credit cards being evil. I was told that even though I pay all my bills on time if I didn't go out and put credit cards in my name I'd never be seen as a resposible person because I'm apparently required to have a record of that. Catch is too much credit even without debt is considered possible debt and that's bad also.

Jeffrey Neal profile image

Jeffrey Neal 6 years ago from Tennessee Author

@Miss Belgravia, thank you for your comments, and I'm afraid you may be right about the CC companies.

Madame X 6 years ago

I'll never have a credit card again. If my score goes down, so be it. Very ggod hub :)

Madame X 6 years ago

What ever happened to the idea that if you don't have the money you don't buy it? The banks are just as greedy as ever and the only way to reign in their greed is to not "buy" into their little schemes. Everyone has to have at least one cc, but that's it. Very ggod hub :)

Jeffrey Neal profile image

Jeffrey Neal 6 years ago from Tennessee Author

Madame X, I would prefer if credit cards weren't so common. They proved to be a stumbling block for me as a younger person, and still hold me back. When I am paid in full, I will have only one card which will reside in a block of ice inside the freezer. That way I will have time to think about what I actually "need" to use it for. I'm glad you liked the hub, thanks for stopping by!

bartender10 6 years ago

This article must have been written by someone who works for the credit card industry. Trying to convince you that the CARD Act has negative consequences is laughable. For example, the article warns that if you have a $10,000 credit card balance your payment may go up from $200 a month to $500 a month (if the credit card company increases the minimum payment). Credit card companies have always been able to increase the minimum payment. Besides, if you have $10,000 in credit card debt then you are in trouble regardless of whether the CARD Act exists or not. Any effort to curtail egregious credit practices is always a good thing. Don't be fooled by the nonsense in this article.

Jeffrey Neal profile image

Jeffrey Neal 6 years ago from Tennessee Author

bartender10, it is good practice to read through an entire article rather than skimming to fully comprehend it. If you had read you would have noticed there is a link to a companion article which shows all of the purely positive results of this act. Showing both sides is hardly "working for the credit card industry." And the facts in both articles were pulled from some very large online consumer credit research sources as well as from the bill itself. If you study the laws just a bit, you will find plenty of examples of a "good" law that has adverse consequences for those it is supposed to help. How about you poll some of your customers and find out how many of them carrying a credit balance received notices of rate and minimum payment increases between July '09 and Feb. '10. I got one from every card issuer I do business with. Thanks for stopping by.

DREAM ON profile image

DREAM ON 6 years ago

There is always new developments that will surprise credit card users.I am not happy and like many other people I will cut down or get rid of my credit cards adventually.Thanks for a good hub.

Ann 6 years ago

Great article. Unfortunately credit card companies will continue to find ways to snatch your hard earned money out of your pockets. I don't know of any other situation where one party can just decide to disregard the "binding" contract and change the rules, at will! We get scores of people sinking in debt through no fault of their own. They pay on time but the credit card companies squeeze and change the rules til there is no way out. Pretty awful indeed.

debt 6 years ago

I just used 1 card and this just for emergency situation. For daily, i used debit card. Thank for your nice articles

scla profile image

scla 6 years ago from Southern California

Great article. With some of these rate increases it will push people to decide to file for bankruptcy. Many people have been able to manage the debt with the rates as they stand but any increases in interest rates will push a lot of people over the border. I have had many clients coming in with notices of rate increases that they can't handle and which made them finally decide to file for bankruptcy.

Texas Consumer Protector 6 years ago

Bankruptcy should probably be one of the last things you should consider. Our firm provides an effective solution that most people don't know about. Bankruptcy is difficult with long lasting negative effects, and credit consolidators often cost you more in the long run. Good job with the information.

credit card machine 6 years ago

I would love to see some CC companies hitting the rocks. This new law is welcomed from my point of view and will give us the wake up call. This way my deposited money won't be spent so easily as it was before.

anna.smith profile image

anna.smith 5 years ago from Germany

Gud Hub.

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