Cause And Affect Of New Credit Card Laws
The new Credit CARD Act of 2009 has dramatically changed the way credit card companies operate. The new law spells out how and when credit card companies can raise interest rates and how they must notify the customers when they do so. It also mandates when they must send out their billing statements.
The new laws are designed to protect consumers. Here’s a quick look at how they do this.
First, the new Credit CARD Act stipulates that credit card companies must tell you two important facts: when they plan to increase your rates and fees, and how long it will take you to pay off your card balance when you’re only making the minimum required payment each month.
The Act also spells out certain rules regarding rates, fees and limits. Cards are not allowed to raise consumers’ interest rates for the first year in which they hold a certain credit card. Interest rate hikes do not impact charges that consumers made before their card issuer raised its rates. Card companies are also forbidden from allowing consumers to make purchases that push them over their cards’ limits. This protects consumers from sometimes high over-the-limit fees.
The Act puts into place restrictions on the way credit card companies send out and collect payments, too. Card issuers must mail their billing statements out early enough each month so that consumers have enough time to send their checks in before missing their payment deadline. When consumers send in payments, credit card companies must apply the payments to the charges with the highest interest rates attached to them first.
Credit card companies weren’t too happy with these changes. Many economists have theorized that these companies might try to strike back, and recoup their potential lost earnings, by setting new traps for unwary consumers.
Some wonder if credit card companies will attach higher rates and new fees to their cards in an attempt to generate new revenue streams. Others say that the banks and financial institutions behind credit cards will make it more difficult for consumers to qualify for rewards points. Many card holders rely on these rewards for free airfare and cash-back bonuses. Credit card companies already stung by the Credit CARD Act regulations, might try to limit their financial losses by becoming stingier with the financial rewards.
Credit card regulations, though, are an important step toward helping many consumers out of financial messes. Many card holders run into financial trouble when they carry balances from one month to the next. Interest rates on cards are so high, that balance can grow quickly if card holders don’t pay it off each month.
Here’s how it works: The average credit card holder owes $10,679. At 24.99 percent interest, the minimum payment on this would be $213.58 each month. If you made this minimum payment each month for 10 years, you would have paid $29,930. But you wouldn’t be done yet. Thanks to interest payments, you’d still owe $11,790.
It only gets worse. By year 20, you’d have paid $56,660 but still owe $13,016. By year 30, you would have paid your card issuer $89,484. You would still owe $14,370. Finally, at year 50, you would have sent $165,729 to your credit card company and would still owe $17,515.
The lesson here? Don’t run up debt on your credit card. And if you do have debt, pay it down as soon as possible.
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