Consumers and the media have been talking about provisions of the new Credit CARD Act of 2009 since some time last winter. After much worry and debate over whether it would make it through Congress, it was finally signed into law by President Obama on May 22.
Because banks insisted that it would take months for them to change their methods of billing, advertising, and marketing, most provisions won’t go into effect until February 2010. However, one small section of the bill will become effective on August 20.
Lawmakers felt that this section of the bill needed to be on a fast track in order to help families who are struggling to pay credit card debt.
Knowing that they had no time to lose, many credit card issuers have responded by raising interest rates and slashing credit lines at a fast pace to get it done before the changes become law. The banks who followed this path have come under fire from lawmakers and others who see the interest rate hikes as a “money grab” by the banks.
The banks defend themselves by saying they’re just reacting to the bad economy and the increased risk they face by giving credit to people who may already be struggling.
The result: Families who were struggling to pay $150 per month on a credit card balance are faced with a higher interest rate and a higher minimum payment. Now they can struggle even harder to pay $200 per month while not making any more progress at paying the principal balance.
Will this move result in more profits for the banks, or will the grab for higher profits result in more charge-offs as consumers “give up” on trying to keep up with ever-increasing payments? Are the banks contributing to a worsening of the “bad economy?”
The three provisions that will become effective in August won’t stop the card issuers from raising rates or slashing credit lines, but they will give consumers advance notice. They are:
1. Replace 15 days written notice with 45 days written notice of interest rate increases and other significant changes to a consumer’s account.
2. Inform consumers that they have a right to NOT accept the higher interest. They may instead cancel their accounts – and apparently will be allowed to pay off balances at previous rates. Right now this option is offered by some card issuers, but is not a law.
3. Mailing monthly statements to consumers 21 days prior to the due date – allowing time for consumers to receive the statement, pay it, and mail back the payment in time for it to arrive by the due date. This provision should at least help consumers avoid paying late fees.
Author: Mike Clover
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