Avoiding Fees Under New Credit Card Rules
ConsumerAffairs.Com
August 24, 2010
Consumers must stay watchful as credit card issuers try to make up lost revenue
The last of a series of new credit card rules took effect this week, offering new protections for consumers. But it still requires vigilance if you want to avoid high rates and fees.
The new rules are part of the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act that became law law earlier this year. Like previous changes, these new rules are designed to protect consumers by adding clarity and transparency to interactions between card issuers and holders.
However, as these new rules take away revenue opportunities for card companies, issuers are raising other fees or creating new ones to compensate. Bills.com, an online money resource, cautions consumers to be aware of the new rules and also learn how to avoid new fees.
"Unfortunately, one of the unintended consequences of these new regulations is that consumers must be more vigilant than ever as we enter a period of uncertainty surrounding fees and services," said Ethan Ewing, president of Bills.com. "These actions by most card issuers are perfectly legal, but they are certainly outside the spirit of the new law."
The first rounds of changes brought on by the CARD Act required issuers to provide more notice about interest rate increases to consumers, end controversial practices such as inactivity fees, and required more transparent communication around payment windows and information.
Changes in the law
The final set of changes that took effect on August 22nd, 2010 include:
• Maximum limit on late fee penalties of $25 or no more than your minimum payment due. The one exception allows for high penalties if the cardholder has multiple late payments within the past six months.
• Limiting penalties to one charge per issue. For example, the issuer cannot charge an additional penalty for each day a payment is late.
• Any increase in interest rates must be accompanied by a clear explanation for the reason behind the increase.
• Issuers must re-evaluate any interest rate increase six months after it is instituted to determine if there is cause to revoke the increase.
• The official end to inactivity fees so that issuers can no longer charge for not using a credit card over a certain time period.
Consequences of changes
These changes have not occurred in a vacuum. Because they mean card issuers will realized diminished revenue, these companies have begun to identify workarounds or even new fees to supplement their losses. The most straightforward example of these changes is a rise in annual fees by many card issuers.
According to a report by Pew Charitable Trusts, the industry's median annual fee on bank credit cards has jumped 18 percent between July 2009 and March 2010. Similarly, issuers have begun to raise balance transfer fees and foreign transaction fees, shorten billing cycles, and issue rebate cards that are exempt from the CARD Act to combat rate increases. Additionally, some issuers are skirting the ban on inactivity fees by raising annual fees but waiving or reducing them if cardholders meet an annual spending threshold.
Solutions
Bills.com suggests six strategies In order to avoid these fees:
1. Monitor your communications from your credit card issuer.
One of the best ways to stay abreast of changes specific to your cards or situation is to closely monitor information sent from your issuer. New regulations require much greater disclosure on all changes, so any update will be sent to your attention. Be alert for all mailings and read them carefully before throwing away or destroying.
2. Maintain prompt payment status with your credit card company.
Despite all these changes, the simplest way to avoid fees is to pay your credit card bills on time. By missing or being late on a payment you will incur fees, potentially increase your interest rate, and lower your overall credit score.
3. Pay down high balances to improve credit card utilization.
This will show that you can responsibly manage your credit limit, minimizing the chance of higher tiers of interest rates or reductions in credit limit. Additionally, better credit utilization will help boost your credit score.
4. Maintain activity on your credit card accounts.
By using the revolving credit lines that you need or want to keep and promptly paying on them, you can help avoid cancellation of those credit card accounts. This will also help avoid faux inactivity fees and help boost your credit score, while having a long existing credit line closed could lower your score.
5. Avoid over-limit fees through responsible spending habits.
Credit card issuers have begun to charge fees for opt-in over-limit coverage. By remaining aware of credit limits and balances, consumers can avoid a need for this service and these fees altogether.
6. New regulations do not apply to corporate or small business cards.
This means some small business owners might consider using personal cards for business expenses because of fee and rate limitations. However, these owners should remain cautious because their personal credit scores could suffer in the event of missed payments or defaults. Conversely, be aware of companies that are increasing solicitations for corporate card members to avoid new regulations.
As a result of the reforms passed in May 2009, many credit card issuers have increased interest rates and lowered credit limits for millions of credit card customers. The accounts have been closed unilaterally. As a result, millions of consumers have less access to credit than they did a year ago.
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