New credit card rules can trap you

“Old times never come back and I suppose it’s just as well. What comes back is a new morning every day in the year, and that’s better.”
– George Edward Woodberry

Last week, I sent a note re: avoiding an audit, and I’ve heard from quite a few friends and clients who passed it along to *their* friends and family for whom (I hope) it’s especially useful.

THANK YOU!

As you probably have gathered, I write these weekly blogs because I sincerely desire to offer my experience and expertise to the tax & financial issues which too often become rushed in the midst of the tax season crunch. I read every response, and I’m so grateful to be connected to a group of families & individuals who trust us enough to invest their hard-earned money in our assistance.

And, of course, I’m always grateful for your referrals–they’re the lifeblood of our firm. While many tax professionals spend an arm and a leg for expensive advertising or have weird, costumed temps waving from street corners, we’ve found that our BEST advertising is the relationships we maintain with our clients and friends. No, I’m not averse to advertising our services–it’s simply that friends who are referred by our clients turn out to be our best kind of clients.

So, thanks for your continued referrals!

This week, I wanted to give you a “heads up” about the new credit card rules which went into effect last week. You should know about some changes which affect YOU.

Read on, and leave your feedback!

“Real World” Personal Strategy
How To Use New Credit Card Laws To Your Advantage

You may not have heard, but a new credit card law (“The Card ACT”) went into effect last week. The provisions of this new law that will impact most of us are the ones around interest rates, over-limit fees, payment allocation, and monthly statements. Now, if you don’t use credit cards in your family life, this doesn’t apply to you…but most people do, and you should know about what’s now being done by credit card companies in response to this new law.

So, here is a quick summary of what you should know so that you can take full advantage of these pro-consumer changes:

Interest Rates
The new rules will make it harder for credit card companies to raise a customer’s rates across the board. Under the so-called “universal default practice”, a consumer who was late on a payment for one credit card might have seen the interest rate rise on that card and another, unrelated credit card.

But now… interest rate hikes are going away during the first year an account is open and on existing balances. However, banks and card companies will still be able to raise interest rates in *some* cases, such as when you are more than 60 days late paying your bill or an introductory rate expires after six months.

Another important exception: Issuers can raise your rate before the first 12 months is up if your rate is “variable” and tied to an index–and that index rises. These indices are at historic lows, but when rates begin to rise (to keep inflation at bay), so will payments.

Over-Limit Fees Rising
Another major change involves the fee charged when a consumer charges more than his or her credit limit. Until now, many card companies have allowed consumers to continue charging beyond set limits–tacking on sometimes hefty over-the-limit fees in the process. Cardholders will now have to “opt-in” for over-the-limit spending.

How Payments Are Applied To Balances
With the new rules, card issuers have to apply payments to the part of a bill with the higher interest rate. For example, if an account has a $5,000 balance with a regular rate of 15 percent, and a $5,000 balance at a promotional rate of 5 percent, the monthly payment must be applied first to the balance with the 15 percent rate. This is good news for the consumer.

Monthly Statements
Credit card statements will have to show how long it will take to pay off a credit card if only minimum payments are made. The statements will also have to show how a consumer may pay off the entire bill in 36 months if payments are increased.

Lastly, you should be aware that, because of these new rules, credit card issuers will be forced to find other sources of revenue. Already, we’re seeing card companies take an “airlines” approach–identifying ticky-tack fees which can be justified as a “normal” course of business. Rewards transactions & international charging are two very-common places which card issuers are already applying fees. So watch your statements carefully.

And, of course, we’ll be watching YOUR information even more carefully–if you let us!

I hope this helps.

Jim OrnelasNew credit card rules can trap you