At the end of February, some key changes to the way that the credit card industry bills and charges interest went into effect as part of new legislation signed by President Obama. Although touted by the President and by supporters of legislation in Congress as a significant step forward in protecting consumers, this legislation is, in fact, a very minor step forward from the previous credit card billing and financing status quo.
There are, to be sure, some improvements worth noting in the new legislation—but not without some accompany areas in which there is a distinct lack of improvement:
- Credit card issuers can no longer raise interest rates on existing balances. This is why your credit card issuer may have raised your interest rates earlier this year, regardless of your payment history. They were slipping one in while they still could, or, in some cases, canceling the card. What the legislation did not do is set a rate ceiling for new customers or for debt incurred for future purchases.
- Credit card issuers can no longer impose a fee upon you when you exceed your credit-limit. However, card issuers can still charge all kinds of other fees, including annual and “inactivity” fees.
- Card issuers are now required to apply your payments to the part of your balance with the highest interest-rate first. Previously, if you had a cash advance balance on your card with a high interest rate, that would be the last place the card issuer would apply your latest payment. Now, it is required to be the first. However, some bad news if you are among the many paying only the minimum payment each month: when you make only the minimum monthly payment, card issuers are still inexplicably allowed to apply this payment to the lowest rate debt on the card!
- Your due-date must now be the same date every month, you must receive your bill at least 21 days before the bill is due, and a practice known as “double-cycle billing,” in which the card issuer uses an average daily balance over 2 months to calculate your interest rate, is now prohibited. You may have also seen on your most recent statement or two a disclosure revealing the amount of time it would take you to pay off the balance making only the minimum monthly payment and how much you’d need to pay monthly to eliminate your debt within 3 years.
- Card issuers are now required to give you 45 days’ notice before making certain account-changes, such as interest rate hikes, charging allowed fees, and other things. However, card issuers are still allowed to close your account or lower your credit-limit for any or no reason at all without any advance notice.
In short, the legislation does take some positive steps forward, but, in my opinion, it doesn’t go far enough in protecting consumers from credit card issuers’ most egregious practices. The problem with “halfway” legislation of this sort, in my opinion, is that it allows the President and legislators to claim that “signifcant reform” has taken place, when, really, a few of the practices of the credit card issuers have simply been modified slightly toward the betterment of consumers. When the politicians involved can successfully make that claim, it is unlikely that further reform will come our way anytime soon.
While it is important that card issuers are now required to give you the information you need to be a better consumer and to make sound financial decisions, what is plain is that, when you click that link on your online statement that tells you how long it will take you to pay off your balance, you will see that your debt is not going anywhere anytime soon as a result of these new laws.
However, other solutions remain viable. A Chapter 13 bankruptcy can still force card lenders and other debt purveyors into a court-ordered payment plan, and a Chapter 7 bankruptcy can still liquidate most debts entirely. If your debt-load is keeping you from caring for your family, from keeping a roof over your head, or from getting to the place you need to be in life, please contact me at email@example.com or (866) 674-2317 to schedule a free, initial consultation so that I can help you find a legitimate path toward a financially sound future.