The last few days have not been good for the major banks. First, the Fed raised the discount rate 25 basis points which will increase the interest rate at which banks are able to borrow money from the Fed. Secondly, Bank of America (BAC), the largest bank in the US, has to pay 150 million dollars in a settlement with the SEC over the bank’s Merrill Lynch purchase in 2008. Now the major banks are facing potential losses in the billions due to new credit card laws. JP Morgan Chase (JPM), Bank of America and Citigroup (C) are the three largest credit card issuers in the U.S. Although the new credit card laws aren’t good for banks, they are great for the cash strapped consumer. While the new credit card laws don’t solve all of the problems with credit cards; it’s a good start.
Here’s how the new laws affect you.
1. Credit card companies must wait 60 days before raising rates on delinquent customers. Under the old rules paying your bill 1 day late meant that credit card companies could raise your interest rate to the highest default APR.
2. No more over-limit fees. Customers must opt in to approve over the limit transactions which would generate fees.
3. Anyone under the age of 21 must have a co-signer to qualify for a credit card or be able to show proof of income. This should protect students from being preyed upon on college campuses. Students are often offered free food and clothes in exchange for filling out a credit card application.
4. Fees are limited on popular “fee harvester” cards offered to individuals with bad credit. I have written posts on fee harvesters before. Subprime cards have so many fees that they often eat up the available credit before you ever receive the card. These fees cannot exceed 25 percent of the available credit in the 1st year.
5. No more double cycle billing. This should stop card companies from charging interest on debt paid off the previous month.
6. Credit card statements must be mailed 3 weeks before their due date. Due dates can no longer be arbitrary time periods. Credit card companies are famous for picking due date like Friday, January 23rd by 10am. In the past you had no idea of knowing when your payment was received. You had to trust your credit card company’s word. And we all know a credit card company wouldn’t lie…sure.
7. The higher interest rate balance will be paid first. All payments above the minimum payment must be applied to the highest interest rate. This should make it easier for cardholders to reduce their balances.
In response to the new credit card laws, credit card companies have come up with new tricks. They are raising annual fees on credit cards and charging inactivity fees to customers who don’t use their cards enough. It only figures.