What To Know About The Credit Card Bill of Rights

by Silicon Valley Blogger on 2008-12-1811

Before you sign up for a credit card, check out the sweeping regulations in the form of the Credit Card Bill of Rights, which the Fed has passed.

The credit card companies and banks are at it again. Our esteemed financial institutions are in the news once more, not for bugging the government for more handouts, but for waking the ire of many credit card consumers who feel they’re being ripped off by unfair practices by their banks.

The latest bank in hot water? Citigroup, which is now under fire for the practice of “rate-jacking”, described as those sudden rate hikes that hit your credit card account with no warning. Apparently, this can happen even if you sport a clean and solid credit rating and good payment history.

Credit Card Company Practices

I suppose this shouldn’t be a huge surprise coming from our beloved credit card companies. After all, here are a few of their recent antics: when the housing boom was going on, these same banks raised the credit limits, encouraged you to use credit cards to reduce your mortgage, raised fees (while hooking customers via good rate offers) and packaged risky loans to investors. These days, two of the most reviled credit card practices are rate-jacking (they hit your rates) and shortening of the grace period or billing cycle (they hit you with fees).

Sounds rough? Well then, what can we do to protect ourselves? Here are a few suggestions:

1. Know the Credit Card Bill of Rights.

Enter, the Credit Card Bill of Rights, which has been under scrutiny by the Senate for the last 4 years, its fate debated upon by consumer advocates, and the banks and credit card companies in bed with the political powers-that-be who make the regulatory decisions. Well, just when you thought this was all a lost cause for us poor card holders, the Fed finally passes these regulations as credit card rule reforms:

  • Credit card companies will not be allowed to raise rates based on our payment history on other accounts.
  • We’re given more time to pay our bills — 25 calendar days (some reports say 21 days) grace period vs the minimum 14 days required today.
  • Abrupt interest rate hikes will be banned; cardholders will be able to opt out of unwanted changes in terms. To opt out, we’ll be able to cancel our accounts or pay off our balances under original terms.
  • We’ll be given more time to consider options when term and rate changes occur.
  • Your card payment will be favorably allocated towards your balance (higher interest charges first).
  • As consumers, we’ll be able to set or fix our own credit limits.
  • The definition of “due date” is much more specific.
  • Some fees will be limited.

This is the kind of medicine we need to survive a recession, though the banks have complained that this is just a form of subsidy for risky customers. Tough.

2. Deal with credit card companies that best comply with the “Bill of Rights”.

The Fed rules won’t be effective till July 1, 2010, so credit card companies still have time to rake us over the coals with their various ploys. The best we can do is to work with banks and companies that are more sensitive to these rules and who play by them even before they go into effect. Some such prominent companies are American Express, Discover, Chase and Capital One.

3. Manage our credit card usage.

Let’s remember that credit cards are but financial tools that are supposed to make our financial lives easier rather than problematic. At least, that’s how I see it! Some ways I make sure that credit card debt doesn’t bite me in the rear:

  • I limit the cards I carry.
  • I limit my overall debt balance.
  • I pay my balance in full every month.
  • I always pay on time.

That’s it! Doing so allows me to take control of my credit card situation and helps me to avoid becoming a debt slave.

In the end, whether or not the government works to legislate laws that favor consumer protection or seeks to regulate banks or the financial industry, we’re all ultimately responsible for our own finances. Our financial situation and success are nobody else’s responsibilities but our own, so do your due diligence and use leverage with care.

Copyright © 2008 The Digerati Life. All Rights Reserved.

{ 8 comments… read them below or add one }

Manshu December 19, 2008 at 6:18 am

The advice is good – especially the one about keeping the overall debt in control. Just by having this in the back of your mind, you can control your debt.

jim of Blueprint for Financial Prosperity December 19, 2008 at 8:03 am

It’s funny that banking companies hate these laws because it hurts them short term, but helps them long term. I think protecting consumers makes for a healthier system.

kitty December 21, 2008 at 8:52 am

I am not a bank and I think these new laws is indeed a subsidy to risky consumers. What these laws will do is penalize those of us who’ve been responsible and paid our credit card bills IN FULL every month without paying interest. There’ll be fewer 0% offers, fewer cash backs, fewer rewards. All to protect irresponsible people who don’t understand the difference between credit and spending money. Not to mention that when banks profits go down, so do banks’ stocks. Banks stocks are part of every index fund in every 401K.

These new rules aren’t going to do anything for me. I’ve never paid interest and I don’t care if I have 25 days or 15 days – I always read the date on my bill and I never spend more than what I have.

Yes some of the practices were bad. But at least one of these practices – universal default – made a whole lot of sense to me. I know that if I lend you money, I sure would want to know if you are paying all of your bills on time, not just mine. Because your being late on any bill means that you are higher risk either because you are irresponsible or you are experiencing some money problem. Higher risk = higher rewards. When a company’s Finch credit rating goes down – and it happens not only because of company’s defaulting or being late but also because of the company’s earnings – company’s bonds lose value and the yield on company’s bonds goes up. Why should it be different with individual consumers?

“As consumers, we’ll be able to set or fix our own credit limits. ”
This doesn’t make any sense to me at all. Surely if I am lending you money, it is my decision how much to lend you? Does this rule mean that a student with no real income will be able to set a $1000000 limit? Unless there are some restrictions here i.e. the company’s ability to refuse credit, how this is different from someone with 19K a year buying a 900K home?

Bill December 21, 2008 at 11:02 pm

Credit Cards are a necessary part of life! I felt like I couldn’t do anything without one! Thanks for the advice and information. I am now a new card holder by following your advice and having your information in mind.

Ed: Sorry, no links to credit card sites allowed here. Thanks!

matttdav December 30, 2008 at 6:27 am

How you plan to use your credit cards will help you choose which offer is the best for you. For instance, if you pay off the balance in full you may want to select a card that offers no annual fee or has frequent flyer miles, as you will be less concerned with the finance charges. If you carry a balance, perhaps the lowest possible interest rate is the most important factor in selecting the right credit card.Use Bills.com as your resource to determine which credit card offer is the one for you.

Cabe December 30, 2008 at 11:32 am

I have one credit card through my credit union and I only use it for gas. I fear that if I got another one or used it on other things besides gas it would get out of hand and then I would be in some debt. I limit what I use it for and that way I am easily able to make payments and make sure that I am not hit with fees. These are all great tips and I will remember them for when I do get other cards. Thanks for sharing.

Ann July 2, 2009 at 12:09 pm

When applying for a credit card. Make sure you know how you will use your credit card and what you will purchase with it before you apply. You also have to keep in mind that every time you use the card, you incur debt that you will have to repay, with interest.

Annie July 9, 2009 at 11:11 am

When you’re applying for a credit card, this only means that you are vowing that you will be responsible financially and that you know that you will be able to pay the balance off in a timely manner. If you are not sure of your ability to pay, you should never apply for a credit card. Be responsible, examine, and research before applying!

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