banktime.com

Love them or hate them, you have to admit that it is pretty hard to get by without a credit card in today’s world. Just try booking a hotel or reserving a rental car without one. (You can’t even buy a cocktail on a Southwest Airlines flight these days without swiping some plastic!) But the credit card industry in the United States is changing rapidly, as if daring consumers to keep up if they can. This year alone, millions of credit card consumers have been bombarded with unwelcome changes ranging from rate hikes to card cancellations, with fee increases, term changes, and slashed credit lines all along the way. The biggest changes are yet to come. The first few months of this year will see the efficacy of what is being called the Credit Cardholders’ Bill of Rights – a sweeping spate of industry reforms designed to bring a wave of change into how credit card companies do business.

Some analysts have forecast that 2010 will go down in history as the Year of Accountability: accountability for card issuers and for consumers alike. Many of these changes will be difficult, if not downright painful to endure. You might not have realized it, but many of these changes have been already set into motion and are going on behind the scenes. The CARD (Credit Card Accountability, Responsibility, and Disclosure) Act of 2009 was formally passed by President Obama over Memrial Day weekend, and the fallout has already begun to be felt. The first wave of changes took effect in August, and the second will begin in February. For a few months now, card issuers have already been required to give consumers forty-five days of notice before coming rate hikes and to deliver bills to consumers no less than three weeks before the due date in the hopes that consumers might be better able to avoid late fees. Consumers also gained the right to opt out of rate increases, albeit with the closure of the account in question and a doubling of the monthly minimum payment. Banks cannot require that you remit your balance all at once, but the debt must be paid off completely within five years. And, on the bright side, you retain your old interest rate on that balance until it is paid off.

These changes are small potatoes considered to what is coming, however. As of February, those customers with a solid payment history may no longer have their interest rates hiked arbitrarily. That means that, barring the existence of variable-rate cards or a teaser rate, consumer card rates must necessarily be set in stone. If a fixed rate card should have the rate changed for some reason, the change will only affect new balances and not existing ones. Rates may be changed if you go over sixty days past due on your credit card bill. The penalty may be quite high, too. On the plus side, however, the credit card company will be obliged to reinstate your lower rate if you are able to pay your balance on time for at least six months. Also, over-limit fees will become a thing of the past unless you want them, as card companies will be required to reject charges that will take you over your limit unless you proactively agree to have this option put on your account. Also expect that your bill will look quite different starting this year. You’ll notice that your statement now includes a figure showing how long it will take you to pay off your balance when paying only the minimum. (This might be a shock to irresponsible spenders!) Young adults will also face new restrictions on obtaining credit products. Unless they have a co-signer or are able to demonstrate their financial independence, those under the age of twenty-one will no longer be able to apply for credit card accounts. The fees charged by card issuers to customers for obtaining a credit card – generally those with poor credit – may not exceed twenty-five percent of the credit limit, either.

You might not have noticed the first signs of these changes, but you can bet that banks have. The changes that have been making so many headlines – rate increases, slashed credit lines, and so forth – are all side effects of the legislation getting ready to take effect. Banks know that their ability to change rates will soon be impacted, so they are preemptively making changes that will protect their bottom line. Has your fixed rate suddenly become a variable rate? Has your interest rate suddenly gone through the roof? You’re being affected by these legal changes that you might not have even known about yet. That’s to say nothing of the estimated fifty-eight million consumers across the United States who have already had their cards cancelled in advance of the CARD Act being put into effect. These aren’t just those who constitute a high risk for credit, either. Actually, the average consumer having had their account closed had a credit score in the ballpark of 760-770, according to the Fair Isaac credit scoring institute that administers FICO scoring for consumers. A lot of these consumers committed the cardinal sin (to banks) of paying off their balance in full each month. Their credit score was TOO good, so they got dropped preemptively rather than continue to generate no income.

Banks are also resorting to all sorts of shady business in the interest of skirting the letter of the full law. Take, for example, a high-risk card product offered by First Premier Bank. Advertised as a card for those with poor credit looking to rebuild their scores, this card carried a two hundred fifty dollars credit limit… and two hundred fifty-six dollars in upfront fees for consumers approved to carry it. In advance of the new law taking effect, First Premier has cut the fes to a modest amount considered allowable by the law… but has slapped the card with an eighty percent rate of annualized interest. Yes, you read that right – eighty percent. (It may be the highest interest rate ever for a credit card.)

Experts anticipate that banks will be bombarding cardholders in coming months with shills for overdraft protection. Since financiers are masters of promotion, this service will seem like something that protects you and that you shouldn’t live without. In fact, it’s just an overpriced gimmick that lets you run up bills past your credit limit at great cost to you. It’s kind of like that monthly “insurance” that banks are always trying to sell you that supposedly will cover your balance if you die, become unable to work, or become unemployed. There may be some marginal value to these plans, but their biggest beneficiary will always be the bank that suckered a consumer into taking it out. These plans have an insanely high profit margin. You can also expect all sorts of interesting new fees: annual fees may again become de rigueur, and you might be charged an inactivity fee if you go too long without making a purchase on your card. This, of course, could be dangerous for those who tend to hold a credit card for emergency use only and lock it in a safe somewhere. They could be suddenly hit with charges that they weren’t expecting, and could overlook the bill.

Don’t count on your bank making these changes obvious, either. Industry analysts have noticed that some notifications of decreased rewards and/or account changes look very much like junk mail. Believe it or not, this is intentional. Banks don’t want you to be too aware of what’s going on with your credit card. If you were more aware, there’s a chance that you might cancel all your plastic! Make sure that you open every single piece of mail that comes from your credit card company or companies this year, even if you are fairly convinced that it is just crap. Keep an eye on your credit score as well, checking it regularly with the three major credit bureaus as you are legally permitted to do annually under Federal law. If you see anything that looks remotely suspicious, pursue it relentlessly until you get to the bottom of it.

The best thing you can do in this time of change? Keep your credit score high. If it’s not already impeccable, do what you can to make it that way. A sound credit score has always been an invaluable tool in a consumer’s arsenal; that has never been more true than now. There might be a day coming when only those with cream-of-the-crop credit scores are able to obtain any kind of plastic that isn’t weighed down with fees and exorbitant interest rates. Don’t be happy just to be preapproved for a credit card – make sure that you carefully examine every little aspect of the offer, considering each important part with the proverbial fine-tooth comb. Of course, your interest rate doesn’t really matter if you are paying off your balance in full each month anyway. If you don’t carry a balance, your card issuer can’t get anything off you at all. And in these days, where consumers are being pitted against banks, that really counts for something.