Credit Card Bill of Rights Explained – Pt.1
As I mentioned in the last entry, I’m going to try to clarify the main points of the new law going into effect in February, commonly known as the Credit Card Bill of Rights. Although the law will help curtail some of the predatory practices of the credit card industry, I don’t think it goes far enough. In the next few posts, I’m going to tell you what the new law will do for you and, more importantly, what it won’t do.
The first point I mentioned in the previous post is that the new law prohibits credit card companies from raising interest rates on money already borrowed unless it was borrowed on a variable rate card, or the minimum payment is made more than 60 days late.
Currently, if the interest rate on your card is increased for any reason, including because they can, they usually raise the rates on your entire balance. In other words, they raise the interest rate on money you’ve already borrowed at a lower rate. Imagine if you’d negotiated a deal on a new car at 4.5% interest for 4 years and whoever loaned you the money raises the rate to 10%, 15%, 20% or even 25% during year two of the loan. This is what the Credit card companies can do. They don’t need a reason and they only need to give you 15 days notice.
As of August 20th, they can no longer do this without giving you 45 days notice, But they can still do it and you can bet that they will — with little or no provocation. After the law goes into full effect in February, they can only do this on variable rate cards or if you are more than 60 days late with at least the minimum payment. They are seldom very forgiving about late payments and you can bet that after February they’ll hammer you if yours is a minute late.
Also related to interest rate changes, new card holders will be protected against interest rate hikes in the first year of an account. The only way interest rates can go up in the first year is if the card issuer disclosed a future rate hike at a preset time when the account was opened. It isn’t clear from what I’ve read, but I doubt that this will apply if you’re a late payer.
The bottom line; between now and February your rate can be jacked up to whatever they choose, they just need to give you 45 days notice. After February, they can only do it if you make a late payment.
Next time, we’ll take a look at how payments are allocated among credit card balances with different interest rates. Bookmark us or subscribe to our RSS feed.
Comments are open and your input is welcome!
