Dealing Consumers a New Hand in Credit Cards
At first glance, the sweeping credit card legislation that passed the Senate on Tuesday looks like a huge victory for consumers. The bill, after all, contains relief from penalty fees and certain interest rate spikes.
But for people who pay off their bills each month, and milk the card rewards programs for everything they’re worth, there is some cause for concern.
For months now, the card companies have been threatening to cut rewards programs sharply to make up for revenue lost because of the new restrictions.
My guess, however, is that this talk is just so much saber-rattling.
Card companies want to make money, and big spenders help them do it, even if those cardholders do not go into debt.
First, let’s lay out the things we know will change because of the new legislation. The bill is chock-full of new rules, which will take effect at various points in the year after President Obama signs the final legislation.
¶There are new restrictions on when card companies can increase the interest rate on balances you’ve already run up. The bill says that banks generally must wait until you’re 60 days late in making the minimum payment before applying a penalty interest rate to your existing debt.
While an earlier bill in the House of Representatives suggested less strict rules, House members have agreed to adopt the Senate version and intend to vote on it on Wednesday. On Tuesday, senators voted 90-5 in favor of the measure.
¶Card companies will have to give 45 days’ notice before raising their interest rates. There’s also a notice requirement for any significant change to a card’s terms, which may keep companies from surprising customers who have been saving their loyalty points for years with huge alterations in rewards programs.
¶Banks must send out your bill no later than 21 days before the due date. They cannot send it with, say, 14 days to go, hoping that you won’t get a check to the bank in time to avoid a late fee.
¶If the card company gets your payment by 5 p.m. on the due date, it’s on time, according to the new rules. No more of this early morning deadline nonsense, which led to late fees for payments that arrived with the afternoon mail. Also, no more late fees if the due date is a Sunday or holiday and your payment doesn’t arrive until a day later.
¶Let’s say you’re paying different interest rates on the debt on a single card — one for a cash advance, another for a balance transfer and a third for new purchases. Now, when you make a payment over the minimum balance, banks will have to apply it to the highest-interest debt first. I bet you can guess how some banks used to handle this sort of situation.
¶Banks will need your permission before allowing you the “privilege” of spending more than your credit limit and paying a fat $39 fee for that privilege. The card companies should be ashamed that they needed a law to make this “opt in” requirement a reality.
¶If you’re a student, it will become harder to get a credit card. No one under 21 can have a card unless a parent, legal guardian or spouse is the primary cardholder. Students with their own income can submit proof and ask for an exception to the co-signer requirement.
The senators, in an apparent endorsement of helicopter parenting, also require written permission from the parent, guardian or spousal co-signer for any increase in a card’s credit line. You can read all the gory details through links to the Senate bill from the version of this article at nytimes.com/yourmoney.
¶Hate gift cards? Me, too. There will be some helpful new rules regarding those absurd dormancy fees, which punish people who let the cards sit around before using them.
Under the Senate’s rule, retailers and others that issue Visa, MasterCard, American Express or Discover gift cards or certificates will have to print explicit dormancy fee information on the card. Sellers of the cards will also have to inform the buyer of the fee. That’s a smart twist, since the gift giver can then become aware of the noxious nature of the fee — and elect to give cash or some other gift.
The bill also bans expiration dates on gift cards and certificates any sooner than five years after the card’s original issue date. And the retailer or card issuer will have to print the terms of any expiration date in capital letters in at least 10-point type. Call it the fine print rule.
It will be fascinating to see which retailer or card issuer has the nerve, after having free use of your money for five years, to tell you it will lose the money altogether if you don’t use up their gift card. I dare them to try.
So will credit card companies kill reward programs or drastically scale most of them back? Of course not.
“If you strip away the reward component of a credit card, it’s essentially a commodity,” said Rick Ferguson, editorial director at the loyalty marketing company LoyaltyOne. “The reward is what gives it its personality. It works from a branding perspective as well as a mechanism to influence customer behavior and consolidate spending on a particular card.”
That last part is crucial. People who spend a ton generate fees galore from merchants, and that money helps the card company stay in business. So you may soon see card companies giving away more goodies or lowering annual fees for people who hit certain spending thresholds each year. American Express already does this on a number of cards.
Also, keep in mind that you may have more control over what the card companies do to you than you may think.
If you don’t like the new fees and other things that banks will soon be testing as they grapple with their new economic reality, then make some noise. Send a note to me at email@example.com, so I can write about the latest foolishness — or consumer-friendly twist. At the very least, all of our complaints to the higher-ups at the banks may help persuade the companies to head in another direction.
“Work your way up the chain,” said Dennis C. Moroney, research director for bank cards at TowerGroup, a MasterCard-owned financial services consultant. After all, it may cost less to appease you than it would to replace you."