First Phase of CARD Act Goes Into Effect Next Month
The majority of provisions in the Credit Card Accountability, Responsibility and Disclosure Act (the Credit CARD Act) take effect in February 2010. But a few key provisions go into effect on August 20, 2009.
One helpful provision that starts next month requires credit card issuers to give 45 days notice before any rate hike. This may be small comfort to the many cardholders who have experienced interest rate hikes over the past year as issuers seem to be raising rates before the Credit CARD Act begins.
Currently, credit card issuers are required to give only a 15-day notice of a rate increase. The 45-day period will give approximately two cycles' worth of time for consumers to shop around and change cards if they desire. In February, the tougher provisions of the CARD Act will ban punitive practices like retroactive rate hikes on existing balances. For many cardholders, this may be too late.
"Issuers realized that change was coming and they have raised rates, cut limits and changed practices quickly and frequently in advance of the regulations going into effect, just as they said they would do," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.
One of the harshest changes was recently announced by JP Morgan Chase, increasing the minimum payment percentage from 2% to 5% for some cardholders, which more than doubles their monthly payment. If the balance is $8,000, the minimum payment at 2% is $160. It jumps to $400 at 5%. While a higher minimum payment forces cardholders to pay off their debt faster and thus saves them money in the long run, this increase could make the minimum payment unaffordable for some cardholders. Hence, it could damage the credit scores for some consumers.
"Evidently forcing segments of cardholders to pay off more of their balance is an effective change for Chase. Earlier this year, they increased the minimum payment to 5% for those who carried a large balance for over two years but made little impact in what they paid off," says Hardekopf. "If this is effective and reduces risk for one issuer, expect other issuers to follow."
With almost six weeks to go before the first CARD Act regulations begin, here is a list of changes made or announced by issuers since June:
* IberiaBank has received attention for having one of the lowest rates available. However, the bank raised its low rate from 6.25% to 8.25%, effective June 26.
* Bank of America increased the balance transfer fee from 3% to 4% on June 1.
* Chase increased the balance transfer fee as well as the cash advance fee to 5% effective in August. Both fees are the highest in the industry.
* Simmons Visa Platinum is moving from a fixed rate to a variable rate. The current APR will remain at 7.25%, but it will now be variable. In addition, the Simmons Visa Platinum Rewards is moving from an 8.95% fixed rate to a 9.25% variable rate. Both changes take effect on July 10.
* Both Bank of America and Chase announced that they will be moving a number of their cards from fixed rates to variable rates.
* At the beginning of June, Chase restructured its rewards program. It launched a new program called Ultimate Rewards, where cardholders earn one point per $1 spent, with no earnings cap or expiration date. This will replace versions of its Freedom card, some of which have offered more generous cash-back rewards and bonus opportunities. The Freedom cardholders who want to keep a fixed 3% bonus for spending in grocery, gas and fast-food categories, will pay a $30 annual fee for the card.
One other provision of the CARD Act that takes effect on August 20: issuers must mail or deliver periodic statements 21 days or more before the payment due date in order to charge a late fee.
One helpful provision that starts next month requires credit card issuers to give 45 days notice before any rate hike. This may be small comfort to the many cardholders who have experienced interest rate hikes over the past year as issuers seem to be raising rates before the Credit CARD Act begins.
Currently, credit card issuers are required to give only a 15-day notice of a rate increase. The 45-day period will give approximately two cycles' worth of time for consumers to shop around and change cards if they desire. In February, the tougher provisions of the CARD Act will ban punitive practices like retroactive rate hikes on existing balances. For many cardholders, this may be too late.
"Issuers realized that change was coming and they have raised rates, cut limits and changed practices quickly and frequently in advance of the regulations going into effect, just as they said they would do," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.
One of the harshest changes was recently announced by JP Morgan Chase, increasing the minimum payment percentage from 2% to 5% for some cardholders, which more than doubles their monthly payment. If the balance is $8,000, the minimum payment at 2% is $160. It jumps to $400 at 5%. While a higher minimum payment forces cardholders to pay off their debt faster and thus saves them money in the long run, this increase could make the minimum payment unaffordable for some cardholders. Hence, it could damage the credit scores for some consumers.
"Evidently forcing segments of cardholders to pay off more of their balance is an effective change for Chase. Earlier this year, they increased the minimum payment to 5% for those who carried a large balance for over two years but made little impact in what they paid off," says Hardekopf. "If this is effective and reduces risk for one issuer, expect other issuers to follow."
With almost six weeks to go before the first CARD Act regulations begin, here is a list of changes made or announced by issuers since June:
* IberiaBank has received attention for having one of the lowest rates available. However, the bank raised its low rate from 6.25% to 8.25%, effective June 26.
* Bank of America increased the balance transfer fee from 3% to 4% on June 1.
* Chase increased the balance transfer fee as well as the cash advance fee to 5% effective in August. Both fees are the highest in the industry.
* Simmons Visa Platinum is moving from a fixed rate to a variable rate. The current APR will remain at 7.25%, but it will now be variable. In addition, the Simmons Visa Platinum Rewards is moving from an 8.95% fixed rate to a 9.25% variable rate. Both changes take effect on July 10.
* Both Bank of America and Chase announced that they will be moving a number of their cards from fixed rates to variable rates.
* At the beginning of June, Chase restructured its rewards program. It launched a new program called Ultimate Rewards, where cardholders earn one point per $1 spent, with no earnings cap or expiration date. This will replace versions of its Freedom card, some of which have offered more generous cash-back rewards and bonus opportunities. The Freedom cardholders who want to keep a fixed 3% bonus for spending in grocery, gas and fast-food categories, will pay a $30 annual fee for the card.
One other provision of the CARD Act that takes effect on August 20: issuers must mail or deliver periodic statements 21 days or more before the payment due date in order to charge a late fee.
