Just in time for the Holidays: Higher Credit Card Interest Rates?

November 5th, 2009. By AbiK

How’re your holiday shopping plans looking? If you’re one of the millions who are either unemployed or thinking that you might be on a bit of job security thin ice (hello, J&J with 8,000 job cuts pending), you may be thinking of whipping out some plastic this holiday season just to ensure that jolly old elf—St. Nick—shows up.

So make your shopping list (and check it twice)—because that’s what your credit card issuers appear to be doing…just in time for the holidays. Yes, the banks who issue credit cards have a little list, too. They know what presents they want to find under their trees: higher interest rates, higher fees on late payments and special transactions, reduced credit limits…and the banks need to find these presents under the tree THIS YEAR because next year, it will be too late. Merry, merry!

See, next year—February, 2010 to be specific—is when the next wave of the Credit CARD Act goes into effect. That’s when credit cards will have to play by some new rules including:

Limits on Interest Rate Hikes: Interest rate increases on existing balances would only be allowed under certain conditions, such as when a promotional rate ends, there is a variable rate, or if the cardholder makes a late payment. Interest rates on new transactions can increase only after the first year. Significant changes in terms on accounts cannot occur without 45 days’ advance notice of the change.

No more Universal Default: “Universal default,” when interest rates are raised based on customers’ payment records with other unrelated credit issuers (such as utility companies), would end. 

More Time to Pay Monthly Bills: Credit care issuers will have to give card account holders “a reasonable amount of time” to make payments on monthly bills. That means payments would be due at least 21 days after they are mailed or delivered.

Clear Due Dates and Times: Credit card issuers would no longer be able to set early morning or other arbitrary deadlines for payments. Cut-off times set before 5 p.m. on the payment due dates would be illegal under the new credit card law. Payments due at those times or on weekends, holidays or when the card issuer is closed for business will not be subject to late fees.

Highest Interest Balances Paid First: When consumers have accounts that carry different interest rates for different types of purchases (i.e., cash advances, regular purchases, balance transfers or ATM withdrawals), payments in excess of the minimum amount due must go to balances with higher interest rates first (right now, it happens in the opposite way).

Limits on Over-Limit Fees: Consumers must “opt in” to over-limit fees. Those who opt out would have their transactions rejected if they exceed their credit limits rather than incurring a fee.

End of Double-Cycle Billing: Finance charges on outstanding credit card balances would be computed based on purchases made in the current cycle rather than going back to the previous billing cycle to calculate interest charges. The current two-cyle or double-cycle billing hurts consumers who pay off their balances, because they are hit with finance charges from the previous cycle even though they’ve already paid in full.

Fee Limits on Subprime Credit Cards: People who get subprime credit cards (typically those consumers who have bad credit) and are charged account-opening fees that eat up their available balances get some relief—the upfront fees cannot exceed 25 percent of the available credit limit in the first year of the card.

Truth about Minimum Payments: Credit card issuers must disclose to cardholders the consequences of making only minimum payments each month, namely how long it would take to pay off the entire balance if users only made the minimum monthly payment. Issuers must also provide information on how much users must pay each month if they want to pay off their balances in 36 months, including the amount of interest.

As you can imagine, February will bring glad tidings and joy for consumers, but not for the banks and/or credit card issuers. They’ll most likely be losing some money in 2010. So they need to make sure they get their wish lists of higher interest rates and ridiculous fees to Santa so he can deliver for the holidays and ensure they—the credit card companies—have a bit of a cushion before they get slammed in February with imposed cut-backs.

That’s why, this holiday season, while I’m all for generosity of spirit and making a child’s face fill with glee as he races toward the tree on the merriest of morns, it might be best to go green this year with your holiday shopping—flash cash where you can and stow away the plastic as best you can. And pay a little extra attention to your monthly statements–better to pay attention than pay through the nose.

Tags: Credit CARD Act, credit cards

This was posted on Thursday, November 5th, 2009 at 3:24 pm and is filed under Financial . Feel free to respond, or trackback. Read our comments policy.