The new law requires:
- Card companies must tell customers how long it will take to pay off the card balance if they only make the minimum monthly payment.
- Customers can only exceed their credit limit if they agree in advance to pay a penalty fee.
- Unless a cardholder misses payments for more than 60 days, interest-rate increases will will affect only new purchases, not the existing balance.
Banning these profitable tactics by credit card companies is expected to cost the industry $12 billion a year in lost revenue.
Credit card companies are scrambling to to find new sources of revenue. They aren’t going to give up that $12 billion easily.
You can anticipate:
- Higher annual fees
- Higher balance-transfer charges
- Higher charges for overseas transactions
And God knows how many other fees and rates will go up.
For example, Citigroup will give cardholders a credit of 10% on their total interest charge if they pay on time. But if you don’t pay on time your interest rate will go up to 29%.
The average American was running a credit-card balance of just over $5,400 at the end of 2009, down about $200 from five years ago.
The biggest new tactic may be one of the oldest: raising rates. As long as credit-card companies inform you ahead of time and don’t make any sudden rate changes, they are mostly free under the law to charge whatever they want. They can raise the rate on new purchases made as long as they provide 45 days notice that they are doing so.
Card companies also plan to collect more interest by switching customers to variable-rate cards from fixed-rate cards. Variable rates, which are linked to an index like the prime rate, are low now. But they give the companies more flexibility to collect a higher rate in the future as long as they alert customers to the terms now. Many card companies have already sent out notices that change the terms of the card contract to a higher or variable rate.
You can expect to see more fees for extra services, such as requesting a year-end itemization of all your purchases, paper states or getting extended warranties on purchases.
Citigroup and Bank of America recently imposed their 3% foreign-transaction fees on all foreign transactions—even if that purchase is charged in U.S. dollars. Discover Financial Services also began charging a new 2% for foreign purchases last year.
Not using your credit card doesn’t mean you may avoid fees and charges. Fifth Third Bancorp is charging customers $19 if they don’t use their credit card in a year.
There is more to read and digest on the Wall Street Journal site.
[Source: Wall Street Journal]