Wednesday, Nov 04 2009 05:29 PM

Rules changing: Watch credit card statements carefully for new fees, rates

BY COURTENAY EDELHART, Californian staff writer

Think twice before you throw away unread notices from your credit card issuer in coming weeks.

So many banks have scrambled to hike interest rates and fees ahead of the enactment of a new consumer protection law for credit card holders that legislators voted Wednesday to move up the law's effective date.

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Provisions of the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009:

* Bans retroactive rate increases on balances in general and severely restricts retroactive rate increases due to late payment.

* Contract terms must be clearly spelled out and stable for the first year. Firms may continue to offer promotional rates with new accounts or during the life of an account, but these rates must be disclosed and last at least six months.

* Institutions will have to give card holders a reasonable time to pay the monthly bill, at least 21 calendar days from time of mailing.

* Credit card companies will be required to apply excess payments to the highest interest balance first.

* Institutions will have to obtain a consumer's permission to process transactions that would place the account over the limit, allowing people to avoid over-the-limit fees.

* Fees on subprime, low-limit credit cards will be substantially restricted.

* Creditors will give consumers clear disclosures of account terms before consumers open an account, and clear statements of the activity on consumers' accounts afterwards.

* Issuers will need to display on periodic statements how long it would take to pay off the existing balance, and the total interest cost, if the consumer paid only the minimum due; and how much it would cost per month to pay off the balance in 36 months.

* Card issuers and universities must disclose agreements with respect to the marketing or distribution of credit cards to students, and issuers must limit marketing to consumers under age 21 unless that person has a co-signer over age 21 or can show they are financially able to repay the debt.

Source: the White House

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House votes to accelerate credit card rules

By ANNE FLAHERTY, The Associated Press

WASHINGTON -- The House voted on Wednesday to impose immediately tough new rules for credit card companies after voters complained of increased interest rates and steep new fees.

The bill, approved 331-92, would accelerate the enactment date of legislation passed this spring that limits when and how banks can charge borrowers.

The proposal's chances in the Senate were dim, where several lawmakers worried that a short deadline would hurt the industry and limit the availability of credit.

Nevertheless, investors seemed to take notice of the House rhetoric. Bank stocks tumbled in the last hour of trading on Wednesday immediately after the House vote, causing a late-day slump in the market.

Democrats said the bill was a warning shot to lenders to stop price gouging. "This is both real and a lesson to them," said Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee.

Last spring, Congress passed legislation that would protect debt-ridden consumers from many of the surprise changes that have become common in the industry. President Barack Obama signed that bill into law in May and most of the new rules will take effect on Feb. 22, 2010.

Under the new law, lenders won't be able to increase rates on existing balances suddenly unless a person is more than 60 days behind on a payment.

Banks also couldn't give cards to people under 21 unless a parent co-signed or the cardholder could prove they had the means to pay back the loan.

To assuage concerns in the Senate that the restrictions were too onerous, Democrats gave banks nine months to prepare for the changes.

But lawmakers say that many credit card companies have used the grace period to increase rates. According to a recent Pew study, even the lowest interest rates offered on most bank cards have jumped by more than 20 percent since last year.

"The same companies that were in my office that claimed they needed months at least to make changes to their systems, apparently only needed in some cases days to find ways to raise interest rates and decrease credit limits on customers across the country," said Rep. Dan Maffei, a New York Democrat.

The House approved an amendment by Maffei to enforce the new rules immediately, instead of the Dec. 1 date proposed by the bill's sponsor, Rep. Carolyn Maloney, D-N.Y.

If lenders agree to temporarily freeze interest rates and fees, they would have until February to comply with a requirement that creditors apply excess payments on a card to a person's highest interest rate.

The proposal was a nod to Senate Banking Committee Chairman Chris Dodd, who has proposed an immediate freeze on interest rates and fees on existing balances until February.

But a vote on either measure in the Senate was considered highly unlikely because of lingering concerns by many senators that the bill could restrict credit when Americans need it most.

Banks deny that they are increasing rates ahead of the February deadline and blame fee increases on the economic downturn. Lenders say that providing customers unsecured loans has become a costly business because of the large number of defaults. Restricting fees will limit access to credit, they say.

House Republicans who opposed the bill said Congress was to blame for the recent rate increases because it meddled in the market and made it tougher on banks to lend money.

The bill "limits choice, rations credit, increases costs and it strangles innovation," said Rep. Spencer Bachus of Alabama, the top Republican on the House Financial Services Committee.

Reps. Barney Frank, D-Mass., and Carolyn Maloney, D-N.Y., co-sponsored the original Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 that President Obama signed into law in May, as well as H.R. 3639, a separate bill passed in the House on Wednesday that would move up the implementation of reforms from Feb. 22 to Dec. 1. It now goes to the Senate.

A few of the original law's minor provisions took effect in August, but most of the changes are set to be enacted in February. Among its many reforms is banning retroactive rate increases on existing balances unless a card holder is more than 60 days behind on payments, and eliminating "bait and switch" tactics by requiring that terms for new card holders remain stable for the first year.

The California Attorney General's Office has seen "a significant jump in complaints and inquiries about credit card companies increasing their rates" in the run up to implementation of the law, said spokesman Evan Westrup.

The acceleration was absolutely necessary, said Donna Severs, chief executive officer of Bakersfield City Employees Federal Credit Union, which has not changed the terms of its Visa cards in years.

"Unfortunately, I think a lot of people, some of them predatory lenders, were rushing to circumvent the intent of the law by putting in place exactly the kinds of changes that the law would make illegal," Severs said.

Banks typically notify customers when credit card agreements change by enclosing a legal notice with a monthly statement or by mailing a separate letter. But many consumers toss such mailings without reading them, so the onslaught of new fees and rate hikes has caught some off guard.

"There are all sorts of changes taking place with issuers right now and consumers need to be paying really close attention," said Bill Hardekopf of, a Web site that helps consumers compare credit card offers.

Since the original credit card bill passed in May, some banks have increased foreign transaction, cash advance and balance transfer fees, hiked interest rates and converted fixed rates to adjustable rates.

"At the very least, consumers need to read the fine print and be aware of what their current terms are so when they get these notices, they will know what's changing," Hardekopf said.

It's not surprising that many banks are choosing to revise credit card agreements, said Beth Mills, spokeswoman for the California Bankers Association.

"Interest rates are one way that credit card issuers price risk," she said. "It's not like a mortgage or auto loan where there's collateral to back up the loan. A credit card is basically an unsecured loan.

"Now that one method of pricing that risk will soon be gone, they're looking at other ways to protect themselves."

That's particularly critical now, Mills said, when a soft economy and high unemployment have caused large numbers of borrowers to miss payments.

Some bank strategies for recouping potential losses have not gone over well.

In April, Chase Bank dropped the $10 monthly service fee it had added to more than 184,000 credit card accounts as part of a settlement with the office of New York Attorney General Andrew Cuomo.

Chase also agreed to refund more than $4.4 million to affected consumers.

Also in recent months, Chase converted some of its fixed-rate cards to adjustable rates.

Bank of America announced last month that it would not boost its credit card interest rates again before February unless the borrower missed two or more payments in 12 months.

Fees are another matter.

"We are testing an annual fee on a very, very limited number of consumer credit card accounts -- about 1/2 of 1 percent of our consumer accounts in the U.S. -- but have not made any final decisions about if or how we may apply annual fees going forward," said Bank of America spokeswoman Betty Reiss.

Wells Fargo notified cardholders in October that most will see interest rates climb up to 3 percent effective Nov. 30 . On fees, it's keeping its options open.

"We may introduce new fees in the future in order to keep credit flowing," said spokeswoman Julie Campbell. "We are reviewing various possibilities."

Kern Central Credit Union hiked increased rates on some cards in October, but said the timing was not related to the new law or delinquencies.

"We do quarterly surveys and found we were below market," said chief executive officer Carl Trejo.

Such increases aren't a sign that competitive rates are extinct, said Odysseas Papadimitriou of, a consumer Web site for comparing credit card offers.

"They won't be charging all of us 16 or 20 percent or whatever," he said. "What you'll see is a lot more initially low promotional offers that jump up after six months or a year or two. That gives them some flexibility if the economy isn't going well or they miscalculate how risky a customer is."

It's important for consumers to stay on top of when those promotional rates end, because in some cases banks charge interest retroactively if the balance isn't paid off by the expiration date.

"Don't take these offers thinking you'll just move the balance to another card when it expires," Papadimitriou said. "Take them with the intention of paying them off by then."

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