A credit reform survival guide

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Credit-card regulation may have taken effect earlier this year, but don’t rest on your free-spending laurels just yet. The card companies are still out to get you. That’s kinda their job. Although the new rules outlaw many decades-old predatory practices, the companies have quickly come up with sneaky ways around the rules and new strategies for fleecing their customers, thus continuing to earn huge profits and the hatred of all people. We thought it’d be helpful to spell out exactly what card companies can’t do and what we all need to watch out for.

Here’s what’s forbidden under the new law, the CARD Act. It’s important that you know this so that you can spot potential violations by your card issuer (such violations have already been recorded by the Consumer Federation of America):

Your credit card company cannot:
-Increase your interest rate on an existing balance, or within the first year an account is open.
-Charge you a fee for inactivity.
-Charge you a fee for making transactions that exceed your credit limit or overdraw your bank account. Instead, your purchase will simply be denied (unless you “opt in” to overdraft “protection”—aka fees. This makes overdraft protection the exception, where it had been the rule).
-Maximize your interest charges by using “two-cycle” billing (imposing interest charges on balances in a past billing cycle or bundling payments).
-Charge you a late fee without warning.
-Raise your interest rates or other fees without first giving you 45 days’ notice and the option instead to cancel the card.
-Charge you annual fees that exceed 25 percent of your credit limit (excluding penalty fees).
-Allow a minor to open an account without a co-signer or proof of means.
-For a given late fee, charge you more than $25 or the amount of your minimum payment due. The one exception allows for higher penalties if the cardholder has multiple late payments within the past six months.

Now, the loopholes—or, what to look out for:
Professional cards
These are part corporate card, part consumer card and fully exempt from the new law. Companies have sent out an unprecedented number of these cards since the law passed.
Rebate cards
These are also exempt from the new regulation.
Annual fees
Even though annual fees can’t total more than 25 percent of your credit limit, 25 percent can be a lot. And many companies are making sure to get as close as possible to that 25 percent, even if their previous annual fees were low. (The 25 percent cap on annual fees does not apply to penalty fees, such as late payment fees, or to “processing” fees, which are charged upon initiating the account.)
Balance-transfer fees and minimum finance charges
These apply when you transfer your credit-card balance to get a lower interest rate; and to balances that remain on the card month-to-month (respectively).
Unfair calendar-driven late fees
That nearly criminal late fee if the due date of your payment falls a holiday or weekend, when the bank doesn’t process payments.

For more detail, and some history behind the legislation, see the suggestions here, here and here. Happy (but responsible) spending!

Read more from Eliza on her blog, The BK Recessionist.

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  1. 1) Professional cards are not on the rise. This is a misquoted statistic from the study I work for in 1Q 2010. 2Q 2010 numbers show that professional cards have dropped by 83%. Also, depending on the issuer, professional cards may be consumer cards, which means they would follow under the restrictions of the CARD Act (ex. Capital One Ultra Professional)
    2) Small business cards are exempt from the new law.
    3) I have no idea where you got the idea that rebate cards are exempt from the new law. ALL CONSUMER CREDIT CARDS are covered by the CARD Act. Rebate cards such as the Chase Freedom, Amex Blue Cash, Discover More ARE covered by the new laws.
    4) Thus far, I have not seen the percentage of cards with an annual fee increase, and we have seen the amount charged actually fall! This part of the law was really designed to restrict the unfair practices of companies like First Premier and Credit One, who haven taken to charging extreme APRs instead. Banks such as Bank of America and Discover are fearful of charging annual fees due to potential consumer backlash.
    5) Due dates must fall on the same day every month. If that due date happens to fall on a weekend or holiday, payments must be processed the next business day without late penalties. (SEC 106 of the CARD Act)

  2. Thanks for your comment Lauren.

    Here are some of my sources.

    1. The USE of professional cards may not be on the rise, but my statement was that OFFERS are
    a. “According to a market research group Synovate, issuers mailed out 46 million professional credit card offers in the first quarter of the year, a 256% increase from the 13.2 million offers mailed during the first quarter of last year.” – Senator Charles E. Schumer
    b. Another source: “so-called professional cards… are like corporate cards but can carry the same terms as consumer cards—and aren’t covered under the new law. In the first quarter of this year, issuers sent out 47 million professional-card offers to U.S. households, up from 13.2 million in the corresponding period last year, according to research firm Synovate.” –Wall Street Journal
    c. Also: “As you may know, business credit cards, also known as “professional credit cards,” are not governed by the recent reforms enacted in the Credit CARD Act.” -Senator Schumer

    2) I didn’t mention ‘small-business cards’ specifically because they are synonymous with ‘professional cards’, which I did mention are exempt from the law. Again see 1) or visit the Wall Street Journal.

    3) “Rebate offers aren’t governed by the Card Act, and an issuer can revoke them suddenly and hit cardholders with high charges.”
    -“But one type of card was excluded from the new rules: the rebate card.“ – The Washington Post
    -Indeed rebate offers are not mentioned in the text of the Act, which you can read here.

    4) “According to a July 22 report from Pew Charitable Trusts, a nonpartisan research group, the industry’s median annual fee on bank credit cards jumped 18% to $59 between July 2009 and March 2010.”

    5) Discover spokesman Matthew Towson. “The law states that if a creditor does not receive or accept payments on weekends or holidays, then the date is extended. But we accept payments seven days a week.” [emphasis mine]
    Unfortunately, he is right about the wording. Again, you can read the bill here.

    • To all Brokelyn interns: Eliza’s comment is required reading. Source it, sister! That’s what I’m talking about….

  3. Great piece – thanks for dissecting the Act and making the info a lot more manageable! Definitely important for consumers, business owners to understand the extents and limits of the regulations.

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