Tough Tactics of Credit Card Companies: What They are Doing and How to Survive Their New Terms.

[Chett]

This past week I continued to fulfill a promise I made to myself at the beginning of the summer, at the beginning of my ten week break from school. I have been spending some time catching up with friends. So this week I went to have lunch with a friend. As my friend and I spoke we began our conversations with the usual starters, “Nice weather we’re having,” or “How’s your family?” As we spoke our conversation quickly shifted to the economy and money. My friend revealed that they were struggling financially and felt trapped. I was a little surprised. About a year and a half ago I met with several families helping them organize their personal finances. We discussed how to get out of debt, build savings, and establish financial independence. I followed up with most of the families a few months later and all of them seemed to be on the right track. It seems the trouble started about six months ago.

My friend told me he received a letter from one of his credit card companies telling him they would be reducing his credit limit from $14,000 to $10,000. He didn’t think much about it and agreed to the change. (Even though they didn’t really need his agreement, they simply were required to notify him.) Another card company contacted him a few weeks later and said they would be raising his interest rate, even though he had never been late on a payment. When he inquired why, they told him because his available credit had been reduced he is now seen as a higher liability and therefore would be subject to higher interest rates. My friend argued, “But my credit limit with you wasn’t reduced, was it?” They replied, “No it was with another company, but our actuaries look at your credit availability as a whole, not just with our company.” As expected my friend was pissed.

One week later he contacted another credit card company that sent him a random credit card offer. On the offer they advertised a much lower rate than what he was paying with an available credit line of $12,000. My friend opened an account with that credit card company and shortly thereafter transferred the balance of his recently interest inflated card to this new card with a lower rate. A month later he received a letter from the new credit card company informing him of a rate increase near levels from which he had just escaped. When he called to find out why, they explained since his debt to available credit ratio had exceeded acceptable levels he was seen as “a risky customer” and his interest rates would be increased.

As he began to inquire with other credit card companies, trying to transfer his balances to lower rates, his credit score continued to suffer. (As each time someone inquires regarding their credit score, their score is dinged.) Now my friend feels stuck and wonders if he and his family will ever get out of the web of entanglements that have been laid for them. Both he and his wife have taken on extra hours at work trying to pay down their balances, but too often they feel like they’re climbing a slippery slope.

So what changed the once benevolent credit industry of endless supplies of cash to the largest version of reality “Gotcha” ever?

A bill called the Credit Reform Act of 2009. (Which actually doesn’t take affect until July of 2010.) When this bill was formed last winter and made its’ way through congress during the spring, credit card companies saw trouble on the horizon and took proactive measures to recoup as many fees and revenue while they could. They were able to influence congress to delay the enforcement of the bill so they could “make necessary adjustments,” which really meant one last run at the consumers to take them for all they could. These changes have resulted in larger than ever increases in bank card default rates. You can see how your area has been affected on this national map.


Here are some of the changes you can expect to see take effect from the Credit Card Reform Act of 2009 next July

The First Year With a New Card

The bill prevents credit card issuers from raising interest rates in the first year after a credit card account is opened, except:
• When the increase is under a variable interest rate.
• At the end of the promised time period for a promotional rate. For example, the issuer can offer 3 percent for six months and then 12 percent after that. (The promotional period must be at least six months.)
• If the required minimum payment is not received within 60 days after the due date.


Existing balances

Credit card issuers cannot raise interest rates on existing balances unless:
• The increase is under a variable interest rate.
• It is the end of a promised time period for a promotional rate.
• The required minimum payment is not received within 60 days after the due date.

Notice of future rate hikes
After the first year, the card issuer can raise the rate on future purchases with 45 days notice. No notice is required for increases due to one of the reasons stated above.
Paying off on old terms
Card issuers can’t change the terms for repaying a balance, except that the issuer may give the cardholder either:
• Five years to pay off the outstanding balance at the old rate; or
• An increased minimum payment that has no more than twice as much of a contribution to paying down the balance as the old minimum payment.

Limits on fees and penalties

• If the interest rate increases because the minimum payment is not received within 60 days after the due date, the rate must go back to the original, lower rate if the consumer makes on-time minimum payments for six months.
• No over-the-limit fees may be charged unless the consumer has asked for the account to be set up to allow transactions that will exceed the credit limit.
• An over-the-limit fee may be imposed only once per billing cycle if the balance is above the limit on the last day of the cycle.
• No fees can be charged to make a payment except for expedited payments arranged through a service representative.
• A card issuer who increases the interest rate must review the account every six months and decrease the rate if indicated by the review.
• Penalty fees (late fee, over-the-limit fee, etc.) must be reasonable and proportional to the omission or violation. The Federal Reserve Board must issue rules to set standards to decide what fee levels are reasonable.
• Two-cycle billing is prohibited. An issuer cannot reach back to an earlier billing cycle when calculating the amount of interest charged in the current cycle.
Ability to pay
Card issuers must consider the consumer’s ability to make the required payments under the credit card’s terms before raising limits or issuing a new card.

Fair application of payments

Amounts in excess of the minimum payment must be applied to the highest interest rate, except in the last two months before a deferred interest balance is due.
Sensible due dates, time to pay
• Credit card issuers cannot set early deadlines for payments. Payments must be received by 5 p.m. at a location set by the issuer.
• Due dates will be on the same day each month.
• Card issuers must deliver the bill at least 21 days before the due date.
Young consumers
• Before issuing a card to a person under 21, the issuer must obtain an application which contains either the signature of a co-signer over 21 or information indicating an independent means of repaying any credit extended.
• Card issuers may not raise the credit limit on accounts held by a person under 21 who has a co-signer without written permission from the co-signer.
• No prescreened card offers can be made to people under 21 unless they have consented to receive such offers.
• Card issuers cannot provide tangible gifts to students on campus in exchange for filling out a credit card application.
• Colleges must publicly disclose any marketing contracts made with a card issuer.

Credit reports

Advertisements for free credit reports must disclose that free credit reports are available under federal law at: AnnualCreditReport.com.
Issuance fees
Issuers cannot finance fees and charges for opening a credit card where the fees and charges total more than 25 percent of the credit limit.
Enhanced disclosures
• Issuers must disclose the period of time and total interest it will take to pay off a card balance if only minimum monthly payments are made.
• Issuer must provide 45-day written notice before raising APR or make any other significant change to the card agreement.
• Periodic statements must clearly state the required due date and late payment penalty.
• Credit card agreements will be posted online and the Fed must keep a public Web site providing them to the public.

Source of Data— Consumers Union

So as the credit card companies are changing the rules of the game and making every last desperate attempt to collect as much money from consumers before regulations rein them in, here are some things you should know and some tips you can follow to help minimize the damage to your own finances.

• If the bank intends to change one of the terms, such as the interest rate, it must send notice at least 15 days in advance of the change. The 15-day advance notice requirement does not apply if the consumer has agreed to the change, or the change is due to delinquency or default, such as exceeding the credit limit.

• Any agreements should detail the interest rate, the length of any promotional rates, penalty fees and penalty fee triggers. Ask for these in writing; don’t take their word for it under any circumstances.

• Some banks allow customers to retain a lower rate by closing the account to future purchases and requiring payment of the balance under existing account terms. If any new terms are objectionable, people should weigh their options, which could include paying off the balance or transferring the balance to another card with a lower rate.

• The National Foundation for Credit Counseling can provide a list of accredited counselors by calling [phone] or visiting their Web site, www.nfcc.org.


Have you been affected by the recent aggressive changes of the credit card industry? If so, how have you tried to adapt to meet their tougher terms and what tips do you have to offer others?