It's no secret that credit cards can get consumers into trouble. Spend more than you're allowed, get hit with exorbitant fees. Miss a payment, see your interest rates shoot through the roof. Pay the minimum payment every month, and it could take a lifetime to get rid of the entire balance.
There is some good news, however. The Credit Card Accountability and Disclosure Act of 2009 (CARD Act) offers protections for consumers, eliminating many of the shadier practices that credit card companies had used to squeeze as much money as possible out of you.
Still, to the surprise of few, these companies quickly found loopholes and added conditions in fine print to ensure their money keeps coming in.
So what does this mean for you, the consumer? Here are some implications of the new law, as well as a few things the credit card companies have done in an attempt to counter the CARD Act (our thanks to Consumer Reports? ShopSmart magazine and Bankrate.com):
First, the good news. Here are protections offered to consumers:
No longer will credit-card companies be able to raise interest rates on an existing balance. They can raise your rates on new balances if you signed up for a promotional interest rate and it expired, if you have a variable rate card, or if you are more than 60 days late in making your minimum payment. In that last case, the bank has to reinstate the lower rate after six consecutive months of on-time payments. Further, rates cannot be raised during the first year of an account, and customers must receive at least 45 days? notice before rates are increased.
Varying due dates have been eliminated. Credit-card issuers are barred from switching the day your payment is due from month to month. As long as your bank receives your payment by 5 p.m. on that day, it is considered on-time.
No more fees on purchases that exceed your credit limit. Customers will not face "over-limit" fees unless they allow the credit card company to approve transactions that surpass their pre-approved limit. Card issuers also cannot charge more than one of these fees per billing cycle. (Note: Team Fixer doesn?t recommend OKing these over-limit transactions!)
Unfortunately, though, with every protection the new law bestows upon the consumer, the credit card companies seem to have found another money stream. As ShopSmart put it, here are the "gotchas" the companies are using:
There is no limit on interest rates. Essentially, the credit card companies can charge whatever rates they want because there is no cap. And though they must give the aforementioned 45 days' notice before raising (or lowering) your rate, the companies can raise them at any time for any reason after the first year. Also, the increase applies to everything you buy starting 14 days after the notice to change your rate is sent out.
Increased minimum payments. We do recommend paying more than just the minimum every month, but creditors are now allowed to make your minimum payment high enough so that you are paying off your balance in five years. And as long as the companies don?t raise your interest rate, they can raise your minimum payment to any level.
Your account can now be closed without notice at any time. Make sure you keep up with the rules of the contract that govern your card --- and try to stay on the companies' good side.
More hidden fees. These include fees to receive paper statements (as opposed to electronic statements via e-mail or the company's Web site) and higher fees on overseas and other foreign transactions, cash advances and balance transfers.