New law protects consumer 'interest'

New laws designed to get consumers out of credit card debt take effect Monday.

The Credit Card Accountability Responsibility and Disclosure Act of 2009 came as the result of more than 60,000 complaints to the federal government of unfair rate hikes, hidden fees and deceptive practices. While the CARD Act does not cap interest rates, it limits the ability of the card issuer to raise them.

The first parts of the act went into effect in August 2009. Credit card issuers cannot charge late fees without giving consumers at least 21 days to make a payment. They also must provide a 45-day written notice of changes to interest rates or fees, after which your card still can be closed or your limit lowered.

Four more features take effect Monday:

- Credit card companies no longer can apply higher interest rates on existing balances. Creditors can increase rates on future balances, if your payment is more than 60 days late or if you agreed to a promotional or teaser rate, such as no interest for the first year.

- Credit cards cannot be issued to applicants younger than 21 unless an adult older than 21 co-signs or the applicant shows proof of income or the ability to pay. Issuers cannot offer sign-up gifts on campuses and must disclose any financial deals made with a college or university.

- Credit card companies can't charge over-the-limit fees unless the consumer opts to allow going over the credit limit.

- Payments made in excess of the minimum owed must be applied first to the balance with the higher interest rate or spread proportionally to all balances.

In general, the changes mean any purchase made must be charged interest only at the card's interest rate when the purchase was made. Even if the issuer hikes your rate, the higher rate would apply only to new purchases going forward.

Credit card issuers say this stops them from penalizing bad customers who turn into bigger credit risks, and they threaten that it will stop them from accepting many consumers altogether. According to a study by the law firm Morrison & Foerster, which offers financial and legal services in 16 offices in the U.S., Asia and Europe,these new changes may reduce credit card industry revenues by $12 billion a year.

"Because of shrinking revenue pools, they may limit the number of people who can get credit cards," said Dan Amesbury, vice president/card products manager for Bremer Bank's corporate office in St. Paul, "Credit card companies will make fewer exceptions for new applicants."

Billing statements

Two new features will be on the top of your next credit card billing statement.

The first will tell you how long it will take to pay off your credit card balance if you pay only the minimum payment each month, and this will be compared with what it will take to become debt-free in three years.

The second is a toll-free number for a credit counseling service.

Americans have charged about $900 billion on credit cards. More than half of those cardholders are paying only the minimum monthly payment. Some companies have charged higher interest rates and lower credit limits in the past few months in advance of the tougher restrictions.

Saving over financing

And those offers of no payments, no interest are about to expire.

Consumers won't see many zero percent offers in the mail because, without being able to increase rates on existing customers, credit card companies won't be able to afford them.

With every plan from now on requiring a monthly payment, many area consumers have been taking advantage of the final days of "no down payment, no interest" offers. Several furniture retailers in Grand Forks reported good Presidents Day weekend sales, some better than last year, on bedroom, dining, home entertainment and home office furnishings.

"People aren't financing long term," said Chris Stroot, manager at Ashley Furniture Homestore. "Everybody's kind of aware that those plans are going away."

Amesbury said the CARD Act will lead to changes in consumer behavior.

"Instead of charging, people will start saving money for big purchases and paying them off with debit cards," Amesbury said. "Credit cards are not bad, in and of themselves. They have a purpose. Individuals and families need to take on creation of a budget and stick to it."

Some UND students use credit cards to pay their tuition, something UND encourages other options for.

"If I look at the transactions processed on the credit cards we accept, 4.3 percent of students paid their tuition this semester by credit card," said Lisa Heher, assistant controller. "Some may be paying by credit card to get awards associated with the cards."

Some investment advisers offer a quick solution to getting out of credit card debt: double the current minimum monthly payment and pay that same amount every month without charging another penny, and your card will be paid off in less than three years.

Reach Johnson at (701) 780-1262; (800) 477-6572, ext. 262; or send e-mail to jjohnson2@gfherald.com .