New credit card law: pros and cons

Politicians cracked down on credit card companies to help out consumers during the recession, but the new credit card law that goes into effect today has pitfalls.

“During the past nine months, credit card companies jacked up interest rates, created new fees and cut credit lines,” an AP story says. “They also closed down millions of accounts. So a law hailed as the most sweeping piece of consumer legislation in decades has helped make it more difficult for millions of Americans to get credit, and made that credit more expensive.”

Here an outline of the changes in store.

Pros:

1. Credit Card companies have to give you 45 days notice if your interest rate is increasing.

2. Statements will now show how long it will take to pay off the balance if you make only the minimum payment. Statements will also show how much you need to pay each month to pay off the loan in three years.

3. Statements must be sent 21 days before the due date, which cannot shift willy nilly anymore.

4. You have to expressly agree to be able to charge over your limit, which triggers over-the-limit fees. Even if you do agree, there are limits to how much your bank can charge you.

5. Folks under age 21 cannot get a credit card unless they have a co-signor or can show they can pay off the charges (independently of their parents’ income).  Banks can’t hang out on college campuses offering perks for applying for a credit card.

6. Americans will save $10 billion or more a year from the changes, according to the Pew Charitable Trust.

Cons:

1. There’s still no ceiling on interest rates.

2. Fees now are capped at 25 percent of the total credit line during the first year – but in my book that is still way too high!!!

3. Annual fees are coming back. In late 2009, forty-five percent of new credit cards had annual fees compared to 25 percent in the same time period the year before.

4. Some retailer credit cards will charge $1 for paper statements, like Victoria’s Secret and Ann Taylor. Look out for inactivity fees, as well.

5. Balance transfer fees will go up on some cards.

6. Reduced credit lines on existing accounts. My credit limit decreased, which is not surprising consider 40 percent of banks reduced credit limits on existing accounts.

7. Higher initial interest rates. The average rate for new cards was 13.6 percent last week compared to 10.7 percent a year ago, according to Bankrate.com.

8. Fewer cards. There are 15 percent fewer Visa, Mastercard, and American Express cards in circulation in 2009 compared to 2008. Maybe this is a good thing, though it means credit cards with perks – like grocery and gasoline rebates – are declining.

I hope these changes have a net positive effect, but the bottom line is that if you use credit cards you have to be very careful about charging more than you can pay off, paying on time, and avoiding fees. When in debt, you are at the lender’s whim.

PS. Remember you can check your credit report for free.