MONEY MATTERS with Ken Barnes -The New Credit Card Law and how it Impacts You!
Posted by Isaac Amo Kyereme | Posted in Features,
One of the popular questions my office has received since February this year has been on the new Credit Card Act, the Credit Card Accountability Responsibility and Disclosure Act (CARD Act) which took effect on February 22nd 2010 and how it impacts them, so I decided to research into it. Below are some of my findings from articles, publications, industry practitioners and personal experiences of real people.
If you own a credit card or have ever owned one, you are probably aware of the annoying, unjustifiable over limit and late fees, double cycling and other complicated billing methods which seek to benefit the credit card companies and get you entrenched in debt and in their grips, the unexpected, unannounced and outrageous interest rate increases and the very aggressive and sometimes inferior way and tactics credit card companies market and force credit cards down the throat of unsuspecting vulnerable high school graduates and new college grads. These are some of the reasons which gave birth to the CARD Act. I will try to analyze how this new law impacts you as a credit card holder, as part of my avowed aim to make you the reader financially savvy and knowledgeable in all you do!
The Act mostly focuses on areas such as credit card finance charges, billing cycles, payments and credit cards solicitations and issuance to college students and young adults among other things. But in this article, I will focus on the finance charges and billing statements, payments and disclosures aspects of the new Act and deal with the other aspects in my next write up.
Credit card companies must give you, the holder a 45day notice if they intend to increase your interest rate or effect any major or significant changes to the terms of your credit card. The exception to this or if you like the caveat is that rate increases are allowed if you are more than 60 days late with your payment. There is however an interesting phenomenon going on. To circumvent this, some of the credit card companies have raised their initial interest rate to as high as 30% and as the card holder makes timely payments, part of the rate is refunded. Interesting huh?
Unless the card holder (you) opts for the over limit fees, credit card companies cannot charge the holder any over limit fees. Which means if the holder exceeds the credit limit in a purchase or transaction, the card company is not supposed to pay. To counter this, some credit card companies have been calling card holders and asking them to opt in for the over limit fees and in exchange, they have offered to lower these over limit charges.
The credit card company cannot increase the interest rate during the first 12 months of opening the account.
New Interest Rate increases can only be applied to new purchases after the rate increase and not the whole amount owed prior to the rate increase. This means if you had a balance of $ 200 at the time your interest rate was increased from 9% to 15% they can not apply the 15% to the $200 balance. That 15% can only be applied to any subsequent purchase you make over and above the $200.
The Application fees for the credit card and the annual fees cannot exceed 25% of the holder's initial credit line. This means if you were initially approved for $200, the application fees and the annual fees combined cannot exceed $50.
If you paid your credit card bill on line on time before the due date, you cannot be charged any fees unless you paid that bill on the due date.
Double -cycle billing is no more! The billing cycle is the period of time between billings. A billing cycle may start on the 1st day of the month and end on the 30th day of the month. Credit companies' use billing cycle to calculate the amount of interest charged for a given billing period. Double-cycle billing takes into account not only the average daily balance of the current billing cycle, but also the average daily balance of the previous period. Double-cycle billing can add a significant amount of interest charges to customers whose average balance varies greatly from month to month. For the most part, many credit card customers are unaware of how this billing method affects their interest charges. The practice came to the general public's attention in 2006 during a United States Senate report on credit card practice. For some credit card companies, double cycle billing is still possible especially those with no grace periods
Credit card companies can no longer dangle in front of you any enticing one month promotional rate! The promotional rate period should be at least six months.
Regarding, payments and billing, the credit card company must send billing statements 21 days before the payment due date in an attempt to give the holder ample time to make the payment on time.
The due date must be a fixed, same date each month! Meaning if your due date is 28th of each month, it cannot change.
Monthly payments are considered on time when received by 5pm on the due date or the next business day after a holiday or weekend.
If you made any extra payments above the minimum payment, it has to be applied to the highest rate balance first.
Every bill must include a disclosure which tells us how long it will take you to pay off your current balance if you make the minimum payments and your total payments including the principal balance. The statement should also disclose how much monthly payment you have to make if you are to pay off the balance in 36 months and the total you will pay.
The statements must always carry a warning of the disadvantages of making the minimum payments financially. the fact that by paying the minimum due it will take you longer to pay off the balance and consequently pay more in interest payments.
As stated earlier on in this article, the objective is to keep you informed so you will make the right and prudent financial decisions in your life! The Christian Bible says that a wise man leaves an inheritance for his children's children. Be that wise man! I will bring you the concluding part in the next edition. I hope this helps!
Ken Barnes- MBA is the President of Barnes and Barnes Financial Inc, Santa Clarita, CA. a member of the American Management Association and the American institute of Management Consultants. You can reach him at BarnesConsult@ymail.com
