Credit card tricks under the new laws
PORTLAND, Ore. – Bills for the house, the car and credit cards cover Jason Floyd's table in Gresham. As Floyd sorts out the receipts for his taxes, he has another thing on his mind. He's out of work, in debt and frustrated with credit card companies.
"I feel sorry for everyone that's going through this," Floyd tells KATU. "Just be fair that's all."
He says one credit-card company raised his interest rate from about 6 percent to about 36 percent – after he was just one day late with his payment.
A new federal credit card law, which takes effect Monday, will force credit-card companies and their banks to change at least some of their "predatory" tactics. "It's like they are running rampant, getting as much money as they can from as much people as they can," he said.
Here you'll find some of the changes in the law that could impact your pocket book, the tricks credit card companies are using to get around the new laws, and how to use this information to your advantage.
Universal default changes
One of those tactics is something called "universal default." In the past, credit card companies could check to see if you had problems with any other bills, even gas or electricity. If even one of those was over due, the credit card company could raise your interest rate.
No more, says Joe Ridout of Consumer Action in San Francisco: "Now that will have to be removed from credit card contracts," Ridout said, "and that's going to benefit consumers in a big way."
Pay-down order
Also, in the past companies could take your payment and apply it to the loan with the lowest interest rate. That way, they could continue to charge debtors the highest interest rate charges – such as those for cash advances – until the account was paid off in full.
No more, says Mat Raczko of Clearpoint Credit Counseling in Southeast Portland: "When you pay on that card, it will go toward paying the highest interest rate first, so it will help you get out of debt that much faster."
Going over the limit
Under the new law, credit card (and ATM card) transactions that would take you over your limit will be declined.
The automatic over-limit decline is good news for consumers who in the past may go over their limit by mere pennies and suffer over-limit fees, negative credit reporting and continued hassle. With the new law, the charge would simply be declined.
That is, unless the account holder "opts" to not participate or signs up for overdraft "protection."
For example, Capital One has been calling its customers with its own verbiage, one operator even called it a case of the government "trying to take away your rights" to go over the limit. Those Capital One card holders who opt out of the federally-mandated change, and continue to allow charges that will push the account over-limit, will get a lowered overdraft fee from $39 to $29.
For many consumers, the $29 charge still off-sets the financial advantage of being able to put $10 to at most $100 more on their credit card above the stated limit. For others, who may need the card only for large unforeseen expenses, this lowered fee could be a preferable option. Those that accept the account over-limit allowance now can have it removed from their account later.
Tricks being used
Capital One isn't alone in coming up with new ways to get around the laws, according to credit experts.
Instead of raising interest rates, some credit card companies are trying to add new fees. They may try a new "annual fee" or, if you don't even use the card, an "inactivity fee."
Other cards are working around the law by changing what used to be a fixed rate to a "variable rate" – usually tied to changes as the federal reserve rate goes up. That rate is very low now, and economists expect it to go up soon as part of continued efforts to stabilize the economy. So, just as adjustable-rate mortgages burned the home buyers in the real estate bust, a variable rate credit card could do the same for those holding this particular kind of plastic.
Disclosures
If you have a credit card that's making a change, the federal government requires that the card company mail you a new disclosure that sets out the fees. Read the fine print. You may even have the option to "opt out" of the changes if you respond now.
Meanwhile, under the new law, credit cards are now required to post their contract terms on the Web for easy access. So if you can't find the printed disclosure, as of Monday you should be able to find it online.
What next?
If you can't opt out, ask yourself "can you afford it?" Raczko said. That, indeed, is the question.
Raczko says now is a good time to start a budget, cancel the cards you don't want and work harder on your debt: "Putting your head in the sand isn't necessarily the best place," he said. "You need to be aware of what's going to happen."
Floyd and his wife are ready, and hope the new law can help.
"If I owe someone money, of course I'm going to pay that money," he said. "...But just be fair to us."
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