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Come February 22nd we'll all celebrate the arrival of new credit card laws. It's a joyous occasion for consumers but only if you know the rules.
What's the deal with the new credit card laws? "There's greater transparency, more information and increases fairness for you," says Adam Levin, co-founder and chairman of credit.com. "But less wiggle room to be upset by any surprises." And because there's nothing worse than seeing a new fees or rates pop up and on to our bills, Levin gives us a run down of what we can expect. 1) If you're lugging around an existing balance, the bank can raise its interest rate if, and only if, a) you're over 60 days late in paying, b) you were on an introductory program that ends or c) you have a variable rate card that's tied to another measure that moves up. That last one - about the variable index - is going to sock a lot of us in the stomach, says Levin. A variable rate changes throughout the life of the loan because it's tied to another index that often moves, such as the prime rate. Thing is, prime rate right now is pretty low, so companies can offer an attractive rate that has no where to go but higher... and at any time, says Levin. That's something to remember that when these offers arrive in your mailbox, because more of them are likely coming your way. 2) While existing balances have more protections, future purchases are fair game. So if you're carrying a lot of debt and your payments are late, the credit card company can review your account and potentially decide to raise the interest rate for everything you buy going forward. 3) Then again, they can also penalize you for spending too little, too. Seriously, they can - and will - close your account or lower your credit limit for that reason, alone. Why would they do such a thing? Because banks have to keep a pile of money on hand (called reserves) based on your - and every other customer's - available credit. If you're not spending and paying them interest, they're better off using those reserves to back a more lucrative client. "We have to keep them from being bored to death or scared to death," says Levin. 4) When you send the credit card company money, these laws force the bank to put the money straight to the balance with the highest rate. Before now, the company would put that payment toward the balance with the lowest rate, so the expensive one would linger around for longer.
5) If you're at the cash register ready to pay for a pile of groceries and have reached your credit limit, you will not automatically be allowed to go step over this line. Remember, that privilege comes with a $39 fee that used to be automatic and generate over $20 billion a year for credit card companies, says Levin. That's why they were so nice about giving you a little extra leeway. Now, you'll have to agree to pay in advance.
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