Pros and Cons of the Credit Card Bill of Rights – How Will it Affect Your Card?

When President Obama signed the Credit Card Bill of Rights last May he signaled a new era in how banks do business. The final law was a compromise between the House bill and the stricter Senate version and is designed to change the way credit card companies bill their customers.

Heralded as a win for the consumer, the Act will best serve those consumers who manage their credit cards responsibly. However the law does not go into effect until February 2010 which gives the banks an opportunity to maximize their current billing strategy. Considering that last year Americans paid over $11 billion dollars in fees (not interest rates) and that the new law is going to greatly restrict the billing practices that generated those fees, the banks have to scramble to come up with new revenue streams. Here’s how the law affects consumers and banks:

Rate increases cannot be applied retroactively on existing balances. This means when a rate increase is allowed, and that has been trimmed back, it can only be applied to purchases going forward. This is a huge loss of revenue to the banks who currently can increase the rate on all balances at any time with or without reason.

  • Double Cycle Billing will be a thing of the past. The bill strictly forbids charging interest on a balance that has been previously paid. Currently banks compute interest base on the last 2 months of billing even if the previous month had been paid in full. The new bill prohibits this practice.
  • Over Limit Fees will be a thing of the past. Unless the consumer explicitly opts into an over limit program, card holders who attempt to go over their credit limit will simply have the charge declined. Currently most banks would allow the charge to go through and then charge an over the limit fee. Often times the first time a consumer would know he was over the limit is when he sees the fee on his statement.
  • Credit card payments will be applied differently If a consumer has multiple rates in his account, the amount of his payment that is over the minimum due will be applied to the highest rate account. Credit card companies currently apply all of the payment to the lowest interest rate account leaving the higher rates untouched and accumulating more interest.
  • Online bill payments cannot be subject to a fee. Payments made online or by electronic transfer or by phone can not be charged a fee. This reverses a practice of many credit card issuers. Card statements must be delivered to the consumer at least 21 days before the payment is due.
  • Minors will have to prove they can pay their bill. Persons under 21 will have to show they have a source of income in order to be issued a credit card. Parent’s can co-sign on the agreement to get around this requirement.

The banking industry is predicting some dire consequences as a result of this new regulation of their previously unregulated business. Banks are obviously for profit organizations and they have to come up with new revenue streams to replace revenue lost to the new law. Among the predictions are:

  • Credit Card Charges. Reliving the 80’s and charging for the credit card account is an easy way for banks to make up some of the lost revenue. Annual charges of $50 to $100 are predicted by the banking industry.
  • Less credit access. Reversing their practice of 20 years of granting instant approval and pre-appoval, the banks now predict that only people who have demonstrated responsible handling of credit will get credit. In other words there will be a loud banging noise as they slam the barn door shut.
  • Goodbye frequent flier programs Reward programs typically cost the banks 1% of the balance of the account. Expect this plans to be scaled back or eliminated all together. The same will apply for the cash back offers.
  • Higher transfer fees. Bank promotional balance tranfers are likely to cost more. Bank of America and Discover are already planning fees in the 2% to 3% range. Similarly, using one of the credit card checks that show up in the mail monthly, will have new fees associated with them.

The new law does not kick in until February 2010 so consumers should brace for another round of rate increases on their current cards. In addition, credit limits will most likely be reduced regardless of history. Over the long run, this law will make banks more responsible in their lending and competitive. However, in the immediate future, many consumers will sit by helplessly and watch their balances grow as interest rates outpace their ability to pay the balance down.

Anonymous Prepaid Credit Cards Allow To Keep Your Privacy

Before, when people need to get additional cash, they turn to credit cards. Theses credit cards allow them to spend money and pay it a later date. It was convenient at first, however, during the succeeding transactions, many of these people failed to pay their debts. Everyone who has a credit card is given his own credit limit based on the plan he has and based on his ability to pay. Some of them get promoted from being an ordinary credit card holder to being one of the bank’s most treasured clients thus being given the gold plan. Many of these privileged people now have cards that they can use even abroad. Nevertheless, there are still many of those people who overspend and yet failed to pay on time. This causes them problems like being run after by the bank. They get embarrassed when credit card agents start calling their homes, begging them to pay. Some banks even call the offices while some send letters from the legal department. To avoid this, the banks have now welcomed a new technology, which are the prepaid credit cards.

Prepaid credit cards allow the card holders to control their expenses with their cards by depositing ahead of time. This money deposited will now serve as their credit limit. Once he or she spends the entire amount of money left in his or her account, he or she will be able to reload it through the bank or ATM depending on the bank’s policies. Getting prepaid credit cards will be a whole lot easier if the applicant has a stable job or ample source of income by providing proofs such as bank statements, business permits or his paycheck.

On the other hand, from this technology, another innovation has evolved that is, the anonymous prepaid credit cards. These anonymous prepaid credit cards allow the users to keep their privacy. Many credit card users are not comfortable with the fact that whenever they use their card, they become vulnerable to tracking systems. With this in mind, everything goes around. Whenever they purchase something using their card, their spending habits are tracked. This is something that should worry credit card holders. With anonymous prepaid credit cards, they need not provide personal information ordinary credit cards ask for.

Since online shopping is a development from the old school way of purchasing directly from the stores, many of these online stores require credit cards. The problem now is that with all the technology around, this information online may not be secured and there is a risk for somebody to hack the information. Upon hacking the information from the card, the hacker can now use the same card in his or her insidious transactions. This becomes a problem especially when the bills come and the user is forced to pay for something he or she did not even purchased.

Numerous banks are now offering this service. Two of those banks are the Visa and the American Express. Basically, anonymous prepaid credit cards work like the prepaid credit cards minus all the personal information. These are not just for those who are hiding something. These are for all those who are not comfortable of “giving away” their personal information to strangers. Are you one of them?

Credit Card Debt Facts – 5 Ways the CARD Act Could Change the Way You Handle Credit

The following credit card debt facts regarding the Credit Card Accountability Responsibility and Disclosure Act (the CARD Act) that’ll go into full effect next February 22nd show how your relationship with your credit card will probably change, and not necessarily for the best. Financial experts aren’t still sure about all the repercussions the new law will have on the lives of millions of American consumers, but some overall results are expected.

Read on to learn more about how the CARD Act will affect the way you handle credit. Only time will tell if the new law will do more good than harm or the other way around. In the meantime, be patient, and manage your credit as responsibly as you can.

1) Some Credit Card Issuers Will Lose A Large Amount Of Money

According to Marc Sacher, Managing Director at Auriemma Consulting Group, banks that rely on integral strategy and promotional offers to retain clients and attract new customers will be deeply affected by the new CARD Act. Among other things, the new law limits promotional offers, rate increases, and fees such as over-limit charges. As a result, banks that have heavily relied on these practices to bring in extra revenue, such as Citi, Bank of America, and Chase, will lose millions of dollars. Chase is expected to see a decrease of anywhere between $500 million and $750 million in revenue. Instead, banks such as Wells Fargo and U.S. Bank, which have relied on co-branding and relationship marketing strategies, won’t be affected much by these new regulations.

2) Less Access To Credit

As a result of the new regulations established by the CARD Act, credit card companies will find it harder to bring in more money. Hence, fewer consumers will have access to credit. This could be seen either as an advantage or a drawback. For instance, it could prevent consumers with little income from becoming deeply in debt. Nonetheless, in case of an emergency, people might not be able to use a credit card to get by until their finances improve.

3) New Fees

The credit card industry is a business, and if the new law will make creditors lose more than $50 billion, they must find a way to make up for it. Unfortunately, financial experts predict that consumers will be subject to new fees so as to make up for the loss in revenue. For example, some creditors have already added an annual fee to their credit cards, and more creditors will likely follow this trend. Other fees that will probably begin appearing include more costs for balance transfers, inactivity fees, and annual fees if your card isn’t charge for a certain amount of money a year.

4) Watered-down Rewards Programs

Rewards programs are another way creditors have found to cut corners. Thus, if you picked a credit card because of this feature, be sure the program won’t go through any changes that no longer make the rewards program appealing to you. Ask all the questions you need answers to so as to evaluate the new program’s features, and whether it’s still attractive to you or not.

5) Less Unfair Practices

Finally a clearly good piece of news! Thanks to the CARD Act, credit card companies must bill clients with at least 30 days in advance before a bill is due. This will help you avoid late payment fees, which, in the past, brought in $22.9 billion in revenue to the credit industry. Moreover, you’ll have a clearer idea of how much in debt you are. According to the new law, creditors must disclose financial details in each statement, such as how long it’ll take you to pay off your debt by making the minimal monthly payment. If, for example, you never sat down to think of it, but in your next statement the creditor explains it’ll take you over six years to cancel your debt, you might decide to take action to become debt free ASAP.

Use Your Credit Card Only When You Need To

These few credit card debt facts hopefully gave you an update on how the CARD Act will change the way you manage credit. Whether you find the new law appealing or not, unfortunately, there’s not much you can do about it. However, as a consumer, you’re most of the time in control of your financial life. Thus, I advise you not to use your credit card unless you really need to. Also, try to keep a credit with a fixed APR to avoid any future headaches and save some money.

Don’t lose hope. No matter how hard things appear to be, there’s generally a solution for everything in life, and your finances are no exception. Evaluate your situation, and research different debt options to get back on track. It might be easier than you think. After all, you’re not alone. Millions of consumers are in the same boat, and due to this fact, more financial alternatives may be available for you to begin your journey to financial freedom.