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Credit card rules may have drawbacks

 
BY DON MECOY | Published: February 23, 2010    Comment on this article Leave a comment

The new credit card rules that took effect Monday are generally helpful for consumers, most experts agree. But those rules have prompted higher fees and interest rates and tighter credit as card issuers look to replace revenue lost in the reforms.

photo - Credit card illustration. Oklahoman archives
Credit card illustration. Oklahoman archives

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Breaking down the New rules

The new rules for credit cards require issuers to provide information on how long it will take to pay off your balance if you make minimum payments.

For example, if you owe $3,000 and your interest rate is 14.4 percent, your bill might look like this:


• New balance: $3,000


• Minimum payment due: $90


• If you make no additional charges using this card and each month you pay only the minimum amount, you will pay off the balance shown in about 11 years.


• If you make no additional charges using this card and each month you pay $103, you will pay off the balance shown in about three years.


• If you make no additional charges using this card and each month you pay only the minimum amount, you will end up paying an estimated total of $4,745.


• If you make no additional charges using this card and each month you pay $103, you will end up paying an estimated total of $3,712. That’s an estimated savings of $1,033.

Source: The Federal Reserve

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"It almost gives consumers a false sense of security that this is all in their favor — that credit card companies will be punished,” said Sue Lynn Sasser, economics professor at the University of Central Oklahoma. "But business doesn’t just take a hit; business passes it along to consumers.”

Anticipating the new policies, many credit card companies already have raised rates and fees.

LowCards.com reported that the average advertised annual percentage rate for credit cards this week was 13.54 percent. A year ago, the average was 11.66 percent.

Other industry watchdogs are anticipating greater use of annual fees, and the emergence of new fees on items such as balance transfers, cash advances and even charges for inactive accounts.

The new rules offer several benefits for consumers, including restrictions on interest rate hikes, caps on high-fee cards and the elimination of double-cycle billing.

In many instances, customers will have the opportunity to close an account if the card issuer makes significant changes in the terms.

Consumers, however, are obliged to keep abreast of the information provided by the card issuers to protect their interests, said Ted Blodgett, shareholder with Gray Blodgett and Co.

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Related Topics: Domestic Policy, Political Policy, Politics, Business, Personal Finance, Consumer Credit and Debt, Government and Politics, Credit Card Fees and Penalties, Consumer Credit Policy and Regulation



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