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President signs credit card bill

Credit card bill signed into law

Many have hailed the passage of H.R.Credit 627 as historic legislation. It's that, all right, and it's not necessarily good news for consumers.

On May 22, 2009, President Obama signed what he proclaimed as “sweeping credit card reforms” into law. We're told that these reforms will protect cardholders from some interest rate hikes, “unfair” fees and questionable billing practices by the evil credit card companies, all in the name of greater transparency and accountability.

Really?

What's more likely is that credit card companies will change the way they do business, and that will impact consumers across the board:

  • Credit lines will be less;
  • Some won't be able to qualify at all;
  • Those most adversely affected will be young people, new business start-ups and those whose payment history indicates they are more of a lending risk;
  • Interest rates will be higher across the board, regardless of whether you've properly managed your credit in the past because the card issuers won't be able to distinguish between “good” and “marginal” or “bad” credit risks as clearly as they have been in the past;
  • Membership fees will be more;
  • You won't see as many balance transfer options;

Some of the key provisions include one that prevents companies from raising interest rates on existing balances unless the borrower is more than 60 days behind on payments. In addition, if you are 60 days or more late, and your rate does get bumped, you'll be able to reinstate the “old” rate simply by making payments on time for six straight months.

In addition, credit card companies must now provide 45 days notice before increasing interest rates. Increases made will not affect existing credit card balance, but will only affect balances accumulated 45 days after receiving the notice.

If you're under 21 years of age, your parent must co-sign your application (or a guardian, or there is otherwise proof of your ability to repay the debt).

You can't go over whatever credit limit has been established, and thus cannot incur any “over-limit” fees - unless you request such “over-limit” access.

Payments will now be applied to any balance with the higher rate of interest, rather than to the (usually lower) balance transfer amount. The practice has been that card companies applied your payment to balance with the lowest interest rate first. As a result, balances with the higher interest rate would keep racking up interest charges.

No longer will card companies be able to import a default or late payment on another card to your balance with that company. Companies are now prohibited from raising your interest rates due to late payments or defaults on other credit cards, loans or bills.

The legislation also prevents companies from issuing a charge for paying a bill by phone or online.

In terms of “transparency”, card companies must now disclose how long it will take you to repay your credit card balance if you only make the minimum payment that's required. They must also disclose how much interest will be charged over the life of the repayment process if the borrower only makes a minimum monthly payment.

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