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The New Credit Card Rules and You


The CARD Act—a set of new regulations designed to limit credit card trickery—went into effect this week even though Congress proposed the act over a year ago. Since then, there’s been a lot of talk about what this all means for people like you and me.

And it’s not all good.

Without prying into painful details, here’s a 60-second run-down of what you need to know about the CARD Act.

Watch your interest rates carefully. The new laws make it harder for cards to raise interest rates (for example, they can no longer jack your APR 10% just because you paid a day late). To make up for this lost revenue, banks raised interest rates on virtually everybody before the laws took effect. And that’s not all: Banks may now issue credit cards with super-high “regular” APRs but lower “discount” or “promotional” rates. The banks can then take away “discount” rates for any reason without violating the new laws. Little has changed. The good news is you can always negotiate a lower credit card APR.

Fees, fees, fees. The new laws will cost credit card banks billions in lost interest. Don’t think they won’t make up for it…with fees. There will be annual fees, paper statement fees and even inactivity fees if you have a card but don’t use it. One area analysts expect banks to target? Foreign currency transaction fees. Most cards charge three percent on any transaction in a foreign currency, and it may go up. (Hint: Captial One cards don’t charge that fee, and have pledged not to start; it’s the reason I voted a Capital One miles card the best credit card for international travel.)

Check your grace period. A grace period is the time during which no interest accumulates on charges. Grace periods are what make credit cards free (or, in the case of rewards cards, even profitable) to users who charge regular expenses and pay their balances in full every month. Some cards may begin reducing or eliminating grace periods to extract interest from what the industry calls “deadbeats”—people who pay off their credit card balances every month and thus, traditionally, never made card companies a dime.

Under 21? Getting a credit card may be more difficult. The CARD Act tries to protect you from card companies that want to get you in debt young and keep you there. But you can still get a credit card before turning 21, you’ll simply need an adult’s blessing or be able to document that you have the means to afford the credit.

The Bottom Line

The CARD Act protects card users from some of the slimiest credit card practices, but the fact is this: A credit card is an expensive and risky financial instrument. It’s fine to use credit cards for their convenience, security and rewards, but as soon as you borrow money on a card that you’re going to pay off over time, you’re at the card company’s mercy and you can expect them to make you pay very, very dearly.

So watch your mail carefully. Read everything your credit card company sends you—that next piece of mail may be their polite notice that they would like to begin charging you more money in a way they never have before.

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.

Comments

  1. Citibank has started charging some customers an annual fee unless a certain amount is charged to the card per year. I spoke to them recently and they said this has not been rolled out across the board, but they were also hesitant to tell me whether it would or wouldn’t be. So I second your suggestion: watch your mail very, very carefully! And if ever in doubt, just give your credit card a call and ask them if any changes have been made to your card.