A new credit card law that President Barack Obama signed last May to help credit card users from getting hit with interest rate hikes and fees is going into effect today. One of the most notable things that credit card holders will notice is on their statements. Your credit card statement will tell you exactly how long it will take you to pay off your balance, if you continue to pay the minimum payment.
“Jaws will drop. I don’t doubt for a nanosecond that it’s going to give a lot of people a sinking feeling in their stomachs,” David Robertson, publisher of The Nilson Report told the Associated Press.
If you have a balance of $3,000 at 14% interest, you are looking at 10 years to pay it off completely.
Before the law went into effect, credit card companies started adding fees, like annual fees in preparation for the new law. Some people have seen interest rates go up considerable or they have had their accounts closed or their credit lines cut.
According to the Nilson Report, in 2007 credit card companies were earning $19 billion, then in 2008 profits fell 65 percent. There is no report for 2009 yet, but it is estimated that banks wrote off about $35 billion in credit card debt last year, and it is predicted it will be the same this year.
Credit card users should be prepared for changes such as, annual fees. For example: Citigroup customers will start paying a $60 annual fee starting on April 1st. Other changes will be new fees and increased fees for processing paper statements or for not using your card at all and fees for transferring your balance. Reward programs will be stopped and credit cards are also going to be harder to get. The law makes credit cards less profitable, so people with lower FICO scores won’t be getting them at all.
The law will help protect people under 21 who have less experience with handling their finances by limiting the marketing the credit card companies can do on college campuses and denying them a credit card unless they have a co-signer or show means to repay.
Now that the law has gone in to affect, what does this mean to you?
Credit card companies cannot raise interest rates the first year after you open an account, unless an introductory rate has come to an end. Cardholders must be notified 45 days in advance of any rate changes.
Existing balances cannot be raised anymore, unless you are 60 days past due. Then if you make your payment on time for the next 6 months then the original rate will go back down.
Cardholders must see on their statement how long it is going to take to pay off their debt if they make minimum payments and how much they need to pay to get it paid off in three years.
All those little fees that everyone was subjected before are now capped at 25 percent of the credit limit during the first year and after that there is no cap.
No longer will you see your due date move around as law required that the due dates stays the same. And statement must be sent out 21 days before they are due and finance charges cannot be applied before that period is up.
There will be no more over the limit fee unless you agree to permit it. This can be tricky for some as where you could use your card to pay for an item and never know you were over the limit until you received your statement, now your charge will be denied. Something consumers haven’t experienced in years.
And for those who more than the minimum payment. Your money will go to the balance with the highest interest rate.
Lastly, gift cards will not expire for 5 years and there will be no inactivity fees unless the card hasn’t been used for 12 months.
Banks will try strategies to keep customers loyal by offering to waive annual fees and better interest rates, to people that do their banking with them.