After the Credit CARD Act of 2009 was signed into law, we saw how credit card issuers started making life tougher for their customers. In short, banks were levying fees on their customers indiscriminately, affecting both the good and the bad.

This has been going on for months. Lawmakers have publicly condemned it, and made requests to the federal reserve, but all to no avail. This week, however, an amendment to expedite the Credit CARD Act (giving it an effective date of December 1st) has passed the House of Representatives in a better-than-average bipartisan manner (only 53% of Republicans opposed it), and I’m hopeful for all of our sakes that a similar measure quickly passes in the Senate.

I read through the words in both versions, and found a few differences, which might make it take longer to work through Congress:

In the House

The House version (full text) makes an exception for depository institutions (banks) with fewer than two million credit cards in circulation. It also comes with various clarifications to make sure that the new law doesn’t apply to banks and creditors who haven’t punished their customers (many of whom continued to pay on time and remain in good standing) in advance of the new law.

It also includes new features starting at Section 6 which state that:

• if you receive notice of a new fee, and you pay off your balance in full, or cancel your account, that won’t negatively impact your credit score
• there will be a nine-month moratorium on rate increases with a start date of the enactment of the Credit CARD Act of 2009

If these amendments pass, the moratorium would start December 1, 2009, instead of nine months after the law was passed, on about February 22, 2010.

In the Senate

The Senate version (full text) includes no additional clarifications or amendments, only a date change to December 1.

Flexo and I don’t agree on everything (if everybody did, life sure would be boring), but we agree that Congress should pass each idea into law based on its own merits, and not bundle them together into a jumbled mess of unrelated ideas. In this case, if you want to expedite a law, then document the new date and move on. Now’s probably not the time to be adding new regulations.

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Expedited CARD Reform for Consumers Act of 2009

With the current and upcoming changes in the credit card industry due to the Credit CARD Act and other regulations put in place by the Federal Reserve, banks and credit issuers are maneuvering as much as possible to be in a good position to continue making money off their customers. Public corporations have responsibility to their shareholders to protect their bottom line, and with the threat of reduced profits due to new regulations you can be sure these companies will try anything within the realm of possibility to survive.

Bank of America has announced some anticipated changes to their credit cards that shows what the future might look like: more credit cards will carry annual fees. These new fees, according to the bank, will range from $29 to $99. And unlike most fee-bearing credit cards, the customers receiving these charges may not have cards that offer premium services like a concierge or extensive rewards.

One of the criteria Bank of America will use to determine which customers are lucky enough to receive the fee is “profitability;” in other words, those of us who don’t send the bank extra in the forms of interest payments and late fees or those who use their credit card infrequently — the responsible users of credit — are likely to be assessed the fee. Bank of America could easily determine which customers are not profitable for the company and charge this annual fee to make them profitable.

For now, there are many fee-free credit card choices for responsible users. The climate might change soon, however. Even the most diligent credit card users, those who manage to use cash back rewards and other benefits while paying off their balance in full every month, might find that the new environment will point to a cash-only spending plan for the best deal.

BofA to charge annual fees on some credit cards, Candice Choi, The Seattle Times, October 13, 2009

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Bank of America Adding Annual Fees to Credit Cards

For a few years, Credit Karma has been offering a product that lets consumers see what lenders and employers see when they look at the consumers’ credit reports. After securely and privately providing your personal information, Credit Karma retrieves your credit report from one of the credit reporting bureaus, either Experian, Equifax, or TransUnion.

Credit Karma then analyzes your details and assigns a grade, A through F. The various categories receiving grades relate to the items that determine your credit score. Lenders review these items when deciding whether to extend credit to you, how much credit to extend, and at what cost.

This is a free service, supported by advertising.

Yesterday, Credit.com announced they will also be offering a similar free service, providing a credit report card to help you evaluate and improve your credit report.

So which service is better? I took both services for test drives.

Credit report cards

Here are some of the most obvious differences. Credit.com assigns grades to the following categories: Payment history, debt usage, credit age, account mix, and inquiries. Credit Karma’s categories are similar: Open credit card utilization, percent of on-time payments, average age of open credit lines, total accounts, hard credit inquiries, total debt, and debt-to-income ratio. More categories, and therefore more information, is more helpful.

To look further into the health of my credit, Credit Karma offers charts in each category, placing my result within the spectrum of results from the Credit Karma Community, all users of the website. So I can see, for example, that the grade of “C” Credit Karma gave me for “Total Accounts,” which includes how those accounts are divided among revolving credit accounts and loans, puts me in a group of users who received an average score of 683, significantly lower than my score.

This tells me I’m doing well enough in the other categories to make up for this deficit but improving my mix of accounts will improve my score further.

I also received a grade of “C” from Credit.com for the “Credit Mix” category. Credit.com doesn’t offer a chart, but it does include details about my types of credit (23 revolving credit accounts, 0 mortgage loans, 1 auto loan, 6 student loans) and excellent suggestions for specific actions I can take to improve in this category.

Here are some screen shots. Click on the thumbnails to see the full-size images.

Credit.com rewards me with an “A+” for the Credit Age category while Credit Karma believes my accounts warrant only a “C.” This discrepancy is due to the underlying information retrieved from the credit bureaus. According to Credit.com my oldest account is almost 15 years old (established in 1994) while Credit Karma sees accounts dating back only five years. The information provided by Credit.com is more accurate; I received my first credit card in 1994 and it has never been closed.

Other features

As you can see in the graphics above, Credit.com offers you a range for several different types of credit scores. The one that matters the most is often the FICO® Score. Credit.com places my score in the range of 750-850. On the other hand, Credit Karma offers one exact score directly from one of the reporting bureaus. It is not a FICO® Score, however.

Up-sell

One important piece of information to note is that throughout the site, Credit.com asks you to “upgrade to a full report.” This is a 3-bureau credit monitoring service for $14.95. For most people, this is an unnecessary service. For those who need credit monitoring services, there are lower cost options. In fact, as Smithee mentioned yesterday, AAA offers some customers free credit monitoring.

Credit Karma offers links to products such as bank accounts, insurance, and money management software. Some of the products will pay a fee to Credit Karma if you sign up through this website.

Conclusion

In this case, Credit.com wins due to the accuracy of the information. This is not Credit Karma’s fault, however. Credit Karma does have a strong plus: this site provides an exact credit score while Credit.com offers only ranges. And through using Credit Karma, I’ve discovered that one of my credit reports does not include my full history. I will need to review all three credit reports at the respective bureaus to find and fix any problems if possible. If I seek a mortgage, it is possible for a lender to evaluate me based on the same information that was provided to Credit Karma, so it is worthwhile to check all avenues.

Credit Karma also uses a “social engine;” you are compared and evaluated among the community of Credit Karma users and the suggested product offers you receive result from user feedback. For me, this is not a strong need, but others might find these social features useful.

Both these services are free, and it takes very little time to provide your personal information and verify your identity. You receive your credit analysis immediately after doing so. Although Credit.com gets my vote at the moment, there is no harm and no cost in using both services.

For those concerned about privacy, here is Credit Karma’s privacy policy and Credit.com’s privacy policy. Episode 3 of the Consumerism Commentary Podcast includes an interview with Kenneth Lin, CEO of Credit Karma. Listen to the podcast for more information about Credit Karma. If you have used Credit.com or Credit Karma’s services, please feel free to share your thoughts below.

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Credit Report Cards: Credit.com vs. Credit Karma

If you’re an AAA member in California, Hawaii, New Mexico or Texas, you’re suddenly eligible for a free credit monitoring service, provided by Experian.

While I was looking through the fine print (a free service for you provided by ConsumerismCommentary.com), I found this, which gave me pause:

You are receiving a complimentary credit monitoring membership. Your membership is effective for the period disclosed to you when you received your activation code. Should you choose to discontinue your membership for any reason before expiration of the then applicable membership term for which you are entitled, you may cancel your membership by calling the toll-free number listed on this Web Site or the toll-free number listed in the welcome materials sent to you. Please be aware that if, at the end of your promotional membership, you decide to continue your membership for a monthly/annual fee, you will have an opportunity to re-enroll at a separate website with different Terms and Conditions.

But the e-mail I got from AAA stated:

This benefit is complimentary to AAA members—there are no hidden fees or charges. You won’t be asked to provide any payment information when you sign up.

There was an offer along the way to see my credit score for $5, but I’m happily using the free CreditKarma service for that.

When it was all done, there was a big button labeled “View Credit Report”, which isn’t the same as “identity theft monitoring”, but for all of our sakes, I clicked it. Thankfully, there was a menu option (all the way at the top, very small font) for “Credit Monitoring”. Here’s what you actually get:

• Daily Monitoring of your Experian Credit Report
• Email Alerts of key changes to your Experian Credit Report
• Dedicated Representatives for Identity Theft Victims
• Experian Credit Report

I love e-mail alerts, so I’ll be keeping this on for a while, and I’ll report back on its usefulness.

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Free Identity Theft Monitoring for AAA Members

Frequent readers know all about how a depressed economy and new laws are serving as convenient excuses for banks to be raising interest rates and otherwise penalizing clients, even those who pose no risk.

Ann Minch was presented with multiple notices of an interest rate hike. Even though she says she’s never missed a payment, she ended up with a 30% interest rate on her Bank of America credit card. She decided she’d had enough and started a protest in a simple YouTube video. YouTube videos are increasingly proving to be a successful way of getting the attention of a corporate behemoth that has wronged you. And it worked for Ann Minch.

Bank of America responded to her revolt, and because she was armed with knowledge and the right attitude, they finally agreed to set her interest rate back to its previous 12.99%. Many of our readers have found in similar situations that persisting with customer service, asking for as many supervisors as you have to, is often successful as well.

Ann explains in the video that she’s starting a new Web site to make the Debtor’s Revolt larger and more effective.

Interestingly, she also hints at a plan to avoid some tax increases, but isn’t very specific. I’d be curious to know what she’s referring to. Assuming she’s talking about federal taxes, I don’t know of any current proposals to raise taxes. In fact the current administration has lowered taxes for 98.6% of working households. The Bush tax cuts are meant to expire next year, but I’m not sure to what extent that will affect most people. Hopefully she’ll be more specific about that in the future.

In the meantime, congratulations, Ann!

Ann Minch Triumphs In Credit Card Fight, Arthur Delaney, Huffington Post, Sep. 21, 2009

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One Person’s Successful Debtor’s Revolt

After we got married, my wife and I combined our finances. We moved most of our money from a local brick and mortar bank to a bank that we primarily access online and over the phone.

This arrangement has worked out well for us, but it does mean some accounts that were previously utilized many times a week have now lain dormant for quite a while. We’re not really too worried about the checking and savings account, but we do keep a close eye on the credit card from that bank.

The card is important to us because not only is it the largest line of credit we have available to us (we rent, have no student loans and no car loan), but it’s also been open the longest – it has a major affect on my wife’s credit score.

With the recent increase in banks closing customers’ cards, we started to worry that our card would mysteriously one day disappear, since we don’t use it very much.

According to this recent article from the Wall Street Journal, while ’surprise’ card cancelations are on the rise, there are risk factors and other things you can be aware of that might help you keep that card in your wallet.

From the article:

“An issuer can cancel a credit-card account without notice when …

* A customer hasn’t used the card in more than a year.
* A customer has defaulted or is delinquent on the account.

An issuer can cancel an account and send written notice within 30 days after the cancellation when a reassessment deems the cardholder too risky.”

In fact, your bank doesn’t even have to notify you about the account closure if your account is closed based on inactivity, default, or late payments. Many people find out about the cancelation only after their card is turned away at a store or restaurant.

So what can we do to keep our cards and avoid damage to our credit scores?

- Pay attention: Double check your bills to make sure you’re not late or in default. Monitor your credit report to make sure it’s accurate, and do all you can to fix any problems.

- Use your card: We use our card for the occasional entertainment expense. Interesting enough, despite hardly using the card over the past few months, our credit limit was increased, helping us our with our credit score. Having a set plan for a card (a small recurring bill or a determined budget category) will help keep the card active.

- Diversify: After reading the article, I realized that even if we do everything we can to keep that card active, we’d really be hurting if it was ever closed. We need another option that will reduce the overall impact of a card closure on our score. Granted, the impact won’t be as bad for someone with a mortgage or student loans, but when a credit card is the only credit you’ve had time to get, it could be a whopper.

I’m much more comfortable now that I know we’re working to keep the card open. I now know that we need to diversify to decrease the impact that each source of credit has on our credit score. Knowing what’s going on with your cards can help preserve your hard financial work and can prevent surprises at the check out stand as well.

Source: Wall Street Journal, Credit-Card Companies Can Cancel Cards Without Customer Knowledge, Aug. 12, 2009.

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Are You Sure Your Credit Card Still Works?

Now that regulations established by the Credit CARD Act and related rules by the Federal Reserve have begun to take effect, I’ve started receiving notices from card issuers regarding my accounts. My Discover Miles Card was opened in 2005 to attempt a 0% balance transfer, a way to earn interest on someone else’s money for free, but the move failed when MBNA denied the transfer and has gone almost completely unused since that event.

Nevertheless, Discover continues sending notifications of terms changes, balance transfer checks, and new cards requiring activation, all to encourage me to use their service. I received one from Discover today, even though I haven’t used my Discover Miles Card in several years.

Here is the summary of the changes.

• Discover will no longer increase the interest rate on existing balances if I pay late or exceed my credit limit, but the interest rate on new purchases may increase to a Default Rate if I miss a payment.
• The card is moving from a “fixed” interest rate to a higher variable rate for purchases: the Prime Rate + 9.74%.
• The same is true for cash advances. The new variable rate for these transactions is Prime rate + 20.74%. (Yikes!)
• The credit card company is using the grace period differently. They will not use new purchases to calculate the amount of interest due as long as I pay my credit card bills on time.

The notification included four pages on fine print, but none of these changes will affect me personally unless I need to use this credit card. I expect my other credit card issuers will send similar notifications soon, but even the new regulations for the cards I use will not affect me much because I charge only what I can pay off by the time the bill is due and pay off my entire balance at that point.

There is always a possibility that I experience a severe emergency for which I have insufficient cash. If for some reason I do need to carry a balance from one month to the next, I would prefer to fully understand the many ways in which I will be punished by the credit card industry.

The improvement of the grace period and the elimination of double-cycle billing are two aspects of the new credit card regulations that benefit consumers. Some of these changes, such as the elimination of double-cycle billing, won’t go into effect until February 2010.

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Discover Card Overhauls Their Credit Card Terms

My girlfriend is an elementary school teacher in the New York City public schools. One of the benefits of her employment is the reimbursement for the purchase of supplies and materials used in her class. Any teacher will tell you that they are required to pay for many of their own materials, and the amount of the reimbursement is subject to a maximum that never covers their full expenses.

The reimbursements until recently were distributed via check, an old-fashioned method of payment. More recently, the City of New York switched to prepaid Visa debit cards, offered by Chase Bank. This must be the result of some sort of a deal between the city and the bank because it does not make much sense for the employee.

Debit cards are meant to be used for spending, but these reimbursements take place after the spending is completed. If you want to use the reimbursements to pay yourself back for your spending on items for the classroom, you must visit a Chase branch to convert the card to cash. We tried taking the debit card to her personal bank of choice, TD Bank, but they claimed to be unable to do anything for us with the debit card.

These prepaid debit cards seem to be the latest trend for rebates. Verizon Wireless, the cellular carrier of choice for both me and my girlfriend, offers rebates on a number of its phones. The last time she needed to purchase a new phone, the rebate came not in the form of a check as it had on prior occasions, but in the form of a prepaid debit card. These cards are touted for their “convenience,” but absent direct deposit I would prefer a check.

Verizon Wireless offers a feature where you can replace your debit card by entering your information online, thus deactivating the card and issuing the old-fashioned paper check to the address on your account. This is a better option but introduces an extra step that many people will simply ignore.

Checks find their way directly into bank accounts while debit cards only make appearances in stores for purchases. If your spending is tight, this might not make a difference. If you use the debit card to purchase something you would have had to purchase anyway, without the debit card, the form of payment won’t affect the amount you spend. Most people’s spending is not tight and controlled. When you send debit cards out to 80,000 teachers, I would believe that many will be used for extra spending and some will not be cashed or used at all. The same is true for wireless phone customers who receive those rebates.

There are reports that the debit cards issued for consumer rebates are unreliable. Some have no problems while others find that cards are declined when they should not be. Even worse, some of these prepaid debit cards have monthly fees. The new rebate debit cards offered by Staples charge a $3 monthly “account maintenance fee” after six months. In states where they are allowed, which I believe is every state except California, fees can eat away at your rebate card balance until you are left with nothing. It is best to cash these rebates or convert them into a check and deposit the funds as soon as possible.

Have you seen more rebates offered in the form of prepaid debit cards? What are your experiences?

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Cash Back Rebates Now Take the Form of Prepaid Debit Cards

When the Credit CARD act passed earlier this year, we weren’t expecting to see many changes until February 2010, unless taken voluntarily by individual companies.

Thankfully (for me, anyway, since I have a personal vendetta against many aspects of credit cards, admittedly due in part to my own foolishness), some of the rules described in the law were designed to go into effect earlier than others. As the Wall Street Journal reports:

Credit card issuers, starting next week, will be required to give consumers 45 days’ notice before raising their interest rate or making other significant changes to a card plan’s terms.

I don’t see this as a punishment, or a blow to capitalism in any way. I think it levels the playing field, assuming life is a competition between a consumer and the huge corporations who do everything they can to maximize profits.

Furthermore:

Issuers also must begin sending bills 21 days before payment is due.

In related news, Discover and American Express are getting rid of fees for exceeding your credit limit. A part of the upcoming Credit CARD rules also has something to say about those fees:

The law doesn’t require issuers to eliminate over-limit fees, but it will prohibit them from imposing these charges unless consumers say they want the ability to exceed their credit line.

Once again, I find that totally fair, and I think it’s a shame that we had to have the legislature step in and finally put a stop to such offensive practices.

New Credit Card Rules To Take Effect Next Week , Jessica Holzer, Dow Jones Newswires, August 13, 2009

Discover, American Express end fees for exceeding limit, Kathy Chu, USA Today, August 11, 2009

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Some Credit CARD Rules Happen Earlier than Others

I use a total of three credit cards. The first is a card issued by Citibank that offers a rounded set of cash back rewards, my alternate is a Bank of America Visa Signature card, and for business expenses I use an American Express Blue Cash for Business card. But I don’t pay interest fees because I don’t carry a balance — I only spend what I can pay off before the due date.

For a conscientious consumer, there are a number of reasons to use a credit card for as many expenses as possible.

• You can often automate regular expenses like cable and electricity. Your accounts are automatically charged rather than opening yourself to forgetting to send a check.
• Credit card statements provide accurate records of your spending. Cash spending often falls under the radar.
• When you pay for most expenses with a credit card, you do not have to carry as much cash around with you.
• You are not liable for fraudulent charges on your credit card.
• Many credit card companies offer rewards like cash back for their use.

Last year, I decided to reduce my credit card spending to practically zero while paying for as much as possible with cash. After a couple of months, I found that my level of spending did not significantly decrease but my level of accuracy in tracking my expenses did decrease. Sometimes, you can’t receive a receipt and it requires time and effort to track these expenses. There are studies that show people tend to spend less when they use cash rather than credit cards, but for people whose spending is already stripped down or optimized, there is no significant difference.

The real problem with credit cards is hidden. I first experienced this first-hand when I worked for a non-profit organization almost a decade ago. Somehow I inherited responsibility of managing the organization’s website, which wasn’t too far-fetched considering I had been running websites for several years at that point and it was a small company. The website included an online store, my first exposure with e-commerce from the management side. Our merchant agreement was with a monster of payment gateway services, Authorize.net. We were paying a third party to manage our store in addition to the merchant account.

I redesigned the store to be managed through what was called Yahoo! Store at the time. It was significantly less expensive and rather than dealing with an unresponsive third party, we managed the store from the office. But I had an interesting inside look at the cost of being a merchant.

It’s expensive to accept credit cards. This cost has to be built into the price of the products — for all customers, even those who pay cash — to ensure a modest profit. Per most merchant agreements, retailers are not allowed to charge a premium for credit card usage. (Some gas stations play fast and loose with these rules by offering what they call a cash discount.)

These fees make it possible for credit card companies to offer rewards even to those customers who pay their bills in full each month. Customers like me feel they are beating the system by earning rewards without paying interest or late fees, but credit card companies have the last laugh; our fervent use of credit cards to earn rewards simply increases their income from the fees charged to merchants for every transaction.

So widespread use of credit cards, with the high fees charged to merchants, increase the cost of goods — all goods — for everyone.

But what possible solutions are there?

We could encourage people to stop using credit cards. I think Dave Ramsey is one of the most influential people who has tried this approach. It has worked well on the individual level, but even if all of his followers were to stop using credit cards, it would not make a dent on the industry. Higher prices due to widespread use of credit cards is something we just have to deal with. Visa, Mastercard, and the others have too much power over retailers, and unless that changes, everyone pays the price for credit cards.

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Credit Card Use Increases Prices for Everyone

Every so often I address questions and comments I receive via email or Twitter. If you have a question, please contact me using the form on this page. I try to respond to everyone, but it might take a while before I read every email I receive.

From A. Parker:

What is the difference between the options when a cashier asks you whether you would like to use your debit card as “credit” or “debit?”

Merchants often pay the middlemen between them and banks less for “debit” transactions, which generally require you to enter a PIN. You will likely see merchants, if they show favor between “debit” and “credit” transactions, lead a customer towards “debit.” To use a debit card as “credit,” you are not actually using it like a credit card. Your bank account will still be debited immediately, overnight, or on the next business day. In most cases, you will be required to sign for the transaction rather than entering your PIN, but signature-less credit card transactions are increasingly common.

According to Visa, using a debit card as “credit” helps to ensure you’ll receive the credit card network’s protections like “Zero Liability.” This also ensures that Visa receives a bigger chunk of the merchant’s money.

If you have questions, let us know. You can email your questions directly to me (or to Smithee, Jeff, or Tom) or leave your questions in the comments area.

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Answering Mail: Using Debit Cards as Credit Cards

The Office of the Comptroller of the Currency (OCC), a governmental regulatory organization feeling the pressure with the White House proposing replacing many of their duties with a new consumer-oriented regulatory body, has sent out a warning to the CEOs of all national banks. The Credit CARD Act of 2009 requires credit card issuers who raise a customer’s interest rate to abide by a number of regulations.

These regulations, such as the requirement to reassess the rates for anyone whose rate increased since January 1, 2009 and for the bank to provide a specific reason for any rate increase, don’t take effect until August 10, 2010. The OCC’s warning is designed to remind credit card issuers that although the rules don’t change until a year from now, they will be in effect for any customer who has been effected since January 1, 2009 — before the Act became a law. The banks will need to maintain these records so they will be available when the regulators come calling next year.

Read the OCC’s letter to CEOs of national banks.

Unfortunately, I am unaware whether my credit cards have increased their interest rates. It has been a long time since I’ve used a credit card to pay for something I could not pay back by the date the credit card payment was due. But I consider myself lucky and thankful to be in that position.

Has your interest rate increased this year?

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OCC Requiring Credit Cards to Report all Interest Rate Increases in 2009

Fair Isaac, the company that created and owns what is generally known as your credit score, is suing Experian and TransUnion, two of the three credit reporting bureaus, for creating a competing product that blurs the line between the “real” credit score and the others. The third credit reporting bureau, Equifax, agreed to settle with Fair Isaac. Fair Isaac uses data from the three bureaus to determine the main credit score used by lenders, security companies, employers, landlords, and many others. This is the FICO score. Fair Isaac has also been developing a new and improved score, FICO 08, used less frequently.

After years of selling their own credit scores to customers — “FAKO” scores — the credit bureaus worked together to create VantageScore, a product to compete with the FICO score. The bureaus claim the VantageScore is more accurate for determining the credit risk of an individual, but Fair Isaac believes the credit bureaus have marketed the VantageScore as if it were the “official” FICO score and the VantageScore infringes on Fair Isaac’s copyright.

There is always an advantage to having competition in the marketplace, but in this case, competition and the lack of clear marketing creates confusion. An individual’s credit score can vary wildly from one company’s calculation to another. It’s also important for consumers to know exactly what they are buying, or even accessing for free.

Even with CreditKarma, which promises to provide your real credit score for free thanks to the support provided by advertising, there is no indication on the website to explain which credit score you are receiving. It is my understanding that CreditKarma receives the score from TransUnion, but it is unlikely they provide the FICO score used by the vast majority of lenders. If it were, CreditKarma would be advertising the fact that you can receive your FICO score for free.

Fair Isaac wants customers to go directly through Fair Issac, and only Fair Isaac, to obtain your FICO credit score. Through myFICO, Fair Isaac charges $15.95 for the “standard” FICO score, and they want to stop credit bureaus from selling or offering products that are confusingly similar to the FICO score.

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FICO Suing the Credit Bureaus Over VantageScore

I’m still looking for a second news source to back this up, but the circumstantial evidence is strong. We got a notice to our “tips” e-mail address about a loophole in the recently-passed Credit CARD Act of 2009, namely:

The law requires credit card companies to give 45 days notice of a rate increase, but only if the card has a fixed rate. The law also requires rates to stay the same for one year after a new account is open, but only for fixed rates.

And since credit card issuers are proactively punishing customers as a result of new legislation which hasn’t taken effect yet, they’ve also decided to start changing fixed-rate cards to variable-rate cards. Simply switching the rate type will enable the banks to raise rates whenever they want, again.

With a variable rate, rates generally rise as interest rates rise, and fall in a declining-rate environment. With rates already near a bottom and expected to rise, most consumers probably won’t see their rates fall further.

Not all customers are being affected, but Bank of America, Chase and Discover have all announced this change for some of their customers.

With some of the banks, you can opt out of the change, which of course comes with a requirement to close the account. The last time our readers encountered this widespread kind of change, they had a surprising amount of luck getting their original terms back by calling and talking to the right people, in the right way. Hopefully many of you can manage the same thing this time. Let us know in the comments.

Fixed-Rate Credit Cards May Vanish , Jane J. Kim, Wall Street Journal, July 13, 2009

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Variable Rate Loophole in the Credit CARD Act

Nationwide, and probably on your street as well, credit card issuers are making life tough for consumers by raising rates and adding fees on otherwise good customers.

The recently passed Credit CARD Act of 2009 is meant to protect non-risky customers from arbitrary rate hikes, among other things.

Now, Senator Chris Dodd of Connecticut is asking Federal Regulators to review recent actions taken by credit companies and possibly force them to undo these punishing moves. Since the law doesn’t go into effect until 2010, he wants Bernanke and company to start regulating retroactively to the beginning of 2009. Specifically, he wants:

credit card companies to review every six months any account where the interest rate has been raised since January 1, 2009. It also directs the companies to reduce the rate if the customer has become less of a credit risk or the circumstances that warranted the increase are no longer present.

It’s basically taking the spirit of the law recently passed and helping out non-risky customers now instead of later. Of course, in light of what we recently learned about how credit issuers decide what makes a person risky, I’m sure there are still plenty of loopholes available.

Sen Dodd seeks review of credit card rate hikes, Karey Wutkowski, Reuters, July 9, 2009

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Possible Federal Action on Credit Rate Hikes

Do you live your life as if everything you do could be made public? I once heard a suggestion that you should judge every decision you make based on whether you would like to see this decision on the front page of the New York Times. That is a good theory, but I can’t say I fully live by this philosophy.

Regardless of the life decisions I make, my purchase decisions are being recorded and analyzed. Almost all of my spending, particularly my major spending, is accomplished through a credit card. I only buy what I can afford and I pay the bill in full every month, but the fact I don’t enter debt or pay interest fees is besides the point.

Based on the places I shop, credit card companies may decide that, based on studies and calculations of the American consuming public en masse, I have become a riskier consumer. If I shop at Some Discount Store, and the algorithms show that people who shop at Some Discount Store are more likely to miss payments or default on a loan, the credit card companies can increase my rates or lower my credit limit. They can change the terms of my credit agreement without missing a payment, exceeding my credit limit, or using a higher percentage of my available credit. Yes, the credit card companies can decide to categorize me in a lower “credit class” based on where I shop. The Credit CARD Act of 2009 doesn’t change this possibility.

If the credit card companies decide to place me in a lower class of consumer, they could increase my interest rates or lower my credit limit. With less credit available, my credit score could be negatively affected. A lower credit score could then have significant financial consequences; I may not qualify for as low as an interest rate on a mortgage than I would have otherwise.

So if you are concerned more about what the credit card companies think of you than you are about what your friends and family think of you, avoid raising a red flag with your banks by choosing cash for these ten purchases. These were suggested by Marketplace.

1. Traffic tickets. If you are more likely to speed and get caught, and to pay for your ticket or court fees with credit, you are a bigger credit risk. Because people who pay for tickets on their credit card tend to default on their payments more often, the credit cards may place you in a lower category of borrowers.

2. Retreading your tires. If you choose to retread rather than replace tires, credit card companies assume you do not have the money to properly maintain your possessions. And if the issuers believe you have less money than you may have indicated when you applied for the card, they might choose to reduce your benefits.

3. Bargain stores. Marketplace points out that American Express has been accused of lowering customers’ credit limits just for shopping at Wal-Mart. That sounds like class discrimination disguised as risk management, but the issuers argue that a change in shopping behavior in a direction of bargain stores indicates concern about money, and if that concern is legitimate, a job loss might be on the horizon. Following the thread, unemployed consumers are more likely to cause a problem for credit card companies.

4. Porn. While the Marketplace article says adult entertainment is simply considered escapism, and those who wish to “escape” may do so due to financial conditions, it seems more likely that credit card simply find consumers of porn to be riskier than others. I wonder if there is any distinction between local strip clubs and high-class escort establishments.

5. Marriage counseling and therapy. If your relationship is on the rocks, divorce might be imminent. Divorce brings on financial problems of its own, such as increased debt and even bankruptcy. The credit card companies will want to cover the possibility of future losses if they believe you are likely to go through a divorce.

6. Lottery tickets. Considered a tax on the poor, lottery tickets are purchased overwhelmingly by people without much money; perhaps winning the jackpot is seen as the only way for people who may not have been given the opportunities of the middle class, or those who had the opportunity to succeed but did not take advantage of them for whatever reason, to build a successful life. Credit card companies see lottery ticket purchases as acts of desperation, and those who are desperate are greater credit risks.

I must confess that when a co-worker goes from cubicle to cubicle, collecting a dollar from each of us to play in the large-jackpot lottery, I still contribute most of the time — not in an act of blind hope but in an act of being social. My coworker doesn’t accept credit cards, though, so I stay out of the banks’ radars.

7. Cash advances. Many years ago, I did take a cash advance. This was before I knew much of anything about personal finance. I had no emergency fund and I left my low-earning non-profit job without a concrete plan. I just needed a few hundred dollars to get me by for a little bit, and I paid it back quickly. But the credit card issuer could have used this event to lower my limit, increase my interest rate, and lower my credit score.

8. Personal pampering. Marketplace suggests women refrain from charging visits to the spa on the credit card if they haven’t established a history of doing so previously.

9. Income taxes. the IRS allows you to pay your income tax bill via credit card. In fact, many people have recommended doing so if you have the cash to pay the bill in full when it comes due and if you can earn cash back or other valuable rewards by paying a large amount of money through credit. But a credit card company may interpret this method of payment as a sign that you can’t handle your financial responsibilities and may penalize you to prevent a larger loss if you default.

10. Alcohol. Drowning your financial sorrows at the bar? That is what the credit card issuers are likely to think if you start using your credit card in bars and liquor stores. Start making a habit of visiting bars and charging the drinks and you may raise a red flag.

While it’s unlikely that some Chase employee is poring over your credit card statement marking demerits for your porn, booze, gambling and spa vacations, the credit card companies have algorithms that detect these patterns automatically. Effectively, a computer program is making the “decision” that could result in you paying thousands of dollars more for your mortgage than if you just paid cash for these certain products and activities.

10 purchases not to put on credit cards, Marketplace, July 8, 2009

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10 Purchases That Can Harm Your Credit

Whether due to the economy or the impending regulation enacted within the Credit CARD Act of 2009, credit card companies are taking the opportunity to raise interest rates and minimum payments. This is perhaps an unintended consequence of increasing regulation. These changes affect consumers with manageable debt, but others who are trying to get out of debt or living paycheck-to-paycheck are harder hit by these changes.

Issuers’ actions come as a growing number of consumers lose their jobs and default in record numbers on their credit card debt. The industry is also preparing for restrictions to take effect in February 2010… The banking industry says Congress has no one to blame but itself for higher rates and fees because banks had predicted that restrictions on pricing would lead to higher costs for everyone…

Yet some critics say that issuers are taking advantage of a loophole in the law to bolster their financial conditions… In a statement Monday, [Senator Charles] Schumer slammed issuers for trying to “wring more dollars out of their customers.” Some of the changes in card terms, Schumer says, are “against the spirit of the law and … just plain wrong.”

Is credit card reform — the Credit CARD Act of 2009 (Credit Cardholders’ Bill of Rights) — a mistake or are issuers just using the fear of losing future profits as an excuse for bilking customers now?

Consumers hit again as some banks raise credit rates, fees, Kathy Chu, USA Today, June 30, 2009

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Credit Card Issuers Making Life Tough For Consumers

Bankrate.com recently completed a study of 20 different credit cards from 10 different issuers and concluded that if one of your priorities is a card which will forgive your human errors, Discover is probably the card to apply for (or not cancel).

Looking at the fine print for one platinum card and one rewards car for each bank, they found the following significant differences:

• Most banks will raise your rates if you pay late once, or end up over the credit limit once. Discover will wait for you to make that mistake twice
• Discover, along with Capital One, have a range of overlimit fees instead of just one flat fee
• Discover’s grace period is 25 days, instead of 20-25

It’s not all hugs and puppies with a Discover card. For example, if you violate the terms of the credit agreement, your rate goes up to 29.99%, the highest in the industry.

Of course, no credit card is a wise choice to carry a balance on. Check the BankRate survey if you’re in the market for a new card; they’ve done most of the hard work for you.

If you want forgiving, Discover card is the one to pick, Becky Yerak, Chicago Tribune, June 30, 2009

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Discover as the Most Forgiving Credit Card

American Express created a frenzy among the wealthy when it decided to take advantage of rumors of an exclusive black-colored charge card, used by movie stars and music celebrities for purchasing jets and other items beyond the financial reach of us mere mortals. In 1999, American Express introduced the Centurion Card, a black charge card with no spending limits and a veritable cornucopia of exclusive benefits, all for a significant fee.

Last year, Visa saw the opportunity to market to the same demographic when this company launched its answer to the Centurion Card, the Visa Black Card which I’ve previously described in detail.

Although the assumption is that the Visa Black Card would compete with the American Express Centurion Card, it actually has more in common with the American Express Platinum Card.

Do you qualify?

If you want to hold a Centurion Card, you must be a Platinum cardholder for at least one year and you must have spent $250,000 on the card in twelve months. Both the Platinum and Centurion Cards are charge cards, not credit cards, so you are expected to pay off your entire charged balance each month.

To qualify for an American Express Platinum Card, the prevailing thought is that you will need an annual income of at least $100,000 and a high credit score in order to be approved.

The Visa Black Card is a credit card, not a charge card, offered to only 1% of the United States population. You and three million other people might qualify for this card. Some current Visa customers have received invitations or have had their existing Visa cards automatically upgraded. There have been reports of people with poor credit and little or no income being approved for this card, and an invitation package was sent to a man who had been deceased for seven years.

Annual fees

The Centurion Card is in a class of its own. When you qualify for the Centurion Card, you will be charged a $5,000 initiation fee and an annual membership fee of $2,500. That’s a total of $7,500 will will owe after the first billing period without having spent any money.

The Visa Black Card carries an annual fee of $495 while the American Express Platinum Card requires a yearly membership payment of $450. This fee comparison makes it clear that the features of the Visa Black Card are more likely to be in line with the Platinum rather than the Centurion.

Concierge services

All three cards offer 24-hour concierge services. The purpose of a concierge is to have a personal assistant with the resources to take care of arrangements you do not have time for yourself. A good concierge should be able to order and deliver gifts to the people you specify, give dining recommendations and make reservations, even in the most popular restaurants. A concierge would be your proxy for shopping.

The Centurion Card goes further by assigning you a personal concierge, so you theoretically always deal with the same employee from the service, who gets to know you and your preferences. Additionally, the Centurion Card reportedly permits you to schedule private shopping at high end stores, such as Gucci, Neiman Marcus, and Sony.

Travel services

The Visa Black Card offers 24/7 legal, medical, and financial emergency travel services, as does the Platinum Card and the Centurion Card. All three cards offer travel accident insurance. The Visa Black Card offers up to $250,000 insurance while the Platinum Card offers $500,000 insurance. The Centurion Card offers $1,500,000 in travel accident insurance.

If your baggage is delayed while traveling, the Visa Black Card will credit you $100 a day for three days, while the Platinum Card will insure your baggage up to $2,000. The Centurion Card will insure up to $1,250 for carry-on items and $500 for each checked bag.

Purchase protection and warranties

If there is a problem with any purchase you make with the Visa Black Card, the card can reimburse the owner up to $500 before 90 days have passed since the date of purchase. The Platinum and Centurion Cards protects holders up to $10,000 per occurrence and $50,000 total per cardholder per year within the same 90 days of the purchase.

Summary

In most cases, the Visa Black Card, despite its appearance, is more competitive with the Platinum Card. Based on these benefits, the Centurion Card is in its own class despite some features in common with the Platinum Card. Many of the Visa Black Card’s services are more aligned with Visa Signature benefits, a level that usually does not carry any annual membership fees.

I’ll stick with a free Visa Signature Card, which also comes with concierge services, purchase security, and all features at levels identical to the Visa Black Card.

Review the details from the sources: Visa Black Card, American Express Platinum Card, American Express Centurion Card, Visa Signature Card.

Your opinions

With fees starting at $450, are luxury credit cards worthwhile? Have you received any offers for the Visa Black Card?

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Comparing the Visa Black Card With American Express Platinum and Centurion Cards

Yesterday, the House of Representatives voted on and passed the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009, the Senate’s alternative to the Credit Cardholders’ Bill of Rights. Here are some of the provisions, taking effect in February 2010:

Credit card companies must give 45 days notice before raising interest rates. Under current rules, a credit card company can raise interest rates on a customer for any reason at any time with no notice. Normally, the cardholder can refuse the rate increase and close the account, and the issuer will provide a chance for the customer to pay down the balance. The new bill, once signed into law and put into effect, will require advance notice.

Credit card companies must apply your payments to your highest interest rate balance first. Let’s say you took advantage of a 0% balance transfer offer for $10,000 but ended up needing to use the credit card for an emergency and made a $2,000 purchase at an interest rate of 10.99%. Currently, any payment you make is likely to be applied to your balance transfer until you pay off the $10,000, forcing you to be charged interest on your $2,000 balance. The new rules would change this practice.

Minors will not be able to own their own credit cards. Anyone under the age of 21 requires a parent or legal guardian to be the main account holder. The child or student could then be an authorized user on the account. There is an exception for students who have income and can prove they can be responsible for the charges on their own. Currently, my cat could get a credit card. He’s only twelve years old.

Consumers will need to “opt in” to charge above their credit limit. In the “good old days” of credit cards, if you charged more than the level of credit the issuer decided to grant you, your purchase would be declined, the waiter would return to your table, embarrass you in front of your friends, and cut your card in half with a pair of scissors. These days, you are allowed to go over your limit, but you will be charged a fee for doing so.

Credit card issuers claim this is a service; they would be mortified if one of their customers would be forced to live without air conditioning in the dark because the payment via credit card for the electric bill didn’t go through. Under the new law, consumers would have to “opt in” to receive the benefit of being charged a fee. In any situation, it helps to monitor your usage so you know when you are approaching the limit.

Your existing balance will not be subject to “universal default.” Today, it’s common practice for many credit card issuers to automatically raise interest rates if you are over 30 days late, or default, on a debt payment to anyone else who reports to agencies like Equifax and Experian. If this happens to you, you may find your interest rate to be increased on your full balance. The new law does not outlaw universal default, but it does prevent old balances from being affected. Only new charges will be able to be assigned a default rate.

Anticipating and fearing the future expense of these changes, some credit card issuers have already begun raising interest rates, lowering limits, and reducing rewards across the board. Many people I’ve spoken to, and some who have commented on Consumerism Commentary, are concerned that well-behaved credit card users who pay their bills in full each month and reap the rewards will have trouble finding amazing credit card deals in the future. I’m not too concerned.

The glut of rewards in the past decade is an anomaly. The game of credit card arbitrage, moving balances around from one card to another to take advantage of 0% interest rates while your borrowed money is earning high interest in a bank account, has always been dangerous, and in the end, a losing proposition. The ubiquity of these deals has significantly decreased over the past few years, anyway.

Credit is flowing better than it was six months ago. Yes, there are still people out there having difficulty obtaining loans, but for the well-qualified, like those who pay in full and are responsible, won’t find much trouble with credit card offers.

Credit card companies will still be competitive. They’re not going to drop their rewards programs. Even if they’re not making money on interest fees and late charges, they are making up to 3%, sometimes more, on every regular transaction through merchant fees, and the value of rewards that come back to the consumer is usually less than 1%. Credit card users who seek rewards, like me, charge more on their credit cards, so the issuers make more money on us than we’d like to believe.

Personal responsibility is an important lesson that should be learned prior to opening a credit card account. Paying attention to your own finances may alleviate 80% of the headaches pertaining to credit cards. But as customers get savvier, the industry finds ways to make dealing with them more difficult for the issuer, hiding rules deep in the twenty-page pamphlet of fine print and changing those rules on a whim.

I expect that credit card issuers will continue finding new ways to make money off of customers who either don’t pay attention to their finances or find themselves in financial distress due to external or unforeseen circumstances, and I expect that responsible users will continue to find moderate and reasonable rewards for good credit behavior.

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Congress Passes Credit CARD Act of 2009, Now What?

In a sweeping vote of 90 to 5, the Senate passed the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009, including the sole unrelated amendment to restore weapon carrying rights in National Paks.

The bill differs from the Credit Cardholders’ Bill of Rights Act of 2009, passed earlier by the House of Representatives. Now the Congress must work together to hammer out a compromise to be presented to the President to sign into law.

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Senate Passes Credit CARD Act

Your money is important, and so I want to make sure I’m telling you the truth in every instance. A few months ago I wrote an article called What You Need to Know About the FICO Update, which contained some news about the process of “piggybacking”:

Not too long ago companies started offering to add someone with poor credit as an authorized user on an account belonging to someone with better credit. After a while, the credit rating for the less fortunate person would improve. Under the new formula, this sort of—let’s be frank—trickery will not be rewarded. Spouses and children, however, will not be penalized in the same way.

Throughout that day, a commenter named Bill tried to tell me I was wrong, and since the e-mail address he used was linked to a company that provides such a service (he didn’t make the address public, so I won’t, either), I still had my doubts.

And I’ve had doubts ever since, in both directions. I thought it’d be worthwhile to wait a few months and see if any news outlets made retractions or corrections to the initial flood of reports that FICO 08 will no longer reward piggybacking. So far they haven’t. Here’s one from May 13th that says the same thing again.

So, I thought, “Well, why not just see what Fair Isaac (the FICO people) say?” And after searching for “fico 08″ on their Web site, exactly one useful page shows up: Fair Isaac Innovation Will Restore Authorized User Accounts to Calculation of FICO 08 Scores.

What that article says is this:

[FICO's] scientists have discovered a way to restore authorized user credit accounts to the calculation of FICO® 08 credit scores while materially reducing any potential impact to the score from tampering. Fair Isaac is now adding the patent-pending technology advance to its FICO® 08 formula. The company estimates that more than 50 million U.S. consumers are legitimate authorized users on another person’s credit card.

It’s that last phrase that I think is the most important: authorized users on another person’s credit card. So, if you have the authority to charge something to a credit card that also has someone else’s name on it, that’s not piggybacking. That’s being an authorized user, and your credit score will benefit from being associated with that person.

In the descriptions I’ve read of services that provide piggybacking, you don’t get access to the credit line or the authority to charge anything on a stranger’s card. Of course you don’t; that would be absurd. I think this is the gap where FICO’s scientists are able to distinguish between authorized users and piggybackers, and why my original conclusion still stands.

Here’s a good article from Bankrate (that updated a previous article) which explains FICO’s:

1. original decision to ignore all authorized users
2. the protests (from people like Bill)
3. and the subsequent tweaking that FICO made to keep authorized users, but still ignore piggybackers

Here are a couple of key phrases:

Legitimate authorized users, such as spouses, parents and children, have relationships with the primary accountholders and reasons to share access to the accounts.

Fair Isaac said lenders complained that using FICO 08 would inhibit compliance with Federal Reserve Regulation B, which requires lenders assessing a married person’s credit risk to consider the credit history of accounts shared by the spouses.

Fair Isaac is keeping the specifics of the new analytic approach secret but says it has found a way to restore authorized-user accounts to the formula but also reduce the impact of piggybacking.

To conclude: authorized users = spouses, children, people with a relationship to the cardholder. Piggybackers = unauthorized.

I don’t want to riddle your screen with links to each news outlet’s report, so I’ll just direct you to Google News for more. Check out a comprehensive list of articles from 2009 that all agree. (Well, they all agree, except for the ones that are reproductions of press releases from companies that offer piggybacking services.)

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Revisiting FICO 08 Piggybacking

As part of our complete coverage of the forthcoming (maybe) Credit Cardholders’ Bill of Rights, I noticed a helpful article over at SmartMoney.com highlighting four different cards which already adhere to the Fed’s new rules about Credit Cards (which don’t technically have to be followed until next year) and/or some of the provisions of the Bill up for consideration in the Senate.

Some of the “benefits” (in other words, they treat you like a human being) include:

• Set your own credit limit, lower than the one on the card, so that you can better control your own spending
• Choose your own due date
• Make payments by phone (you’d think this was already available everywhere)
• Make payments on the due date without being charged extra (ditto)
• Your card’s rate won’t go up if you behave poorly on an unrelated account (AKA “Universal Default”)
• Get at least a month’s warning before a rate increase goes into effect
• The statement is mailed well before the due date to prevent late payments
• Avoid double-cycle billing (imagine paying your rent for May based on how many days you lived there in May and April)

These cards also have other benefits that actually do go above and beyond in an effort to entice you to switch. The above list, however, are things that the average “man on the street” would reasonably assume are already true of every credit account.

The article cites four credit cards following the rules: Discover® Motiva Card (apply here), Citi Forward Card (apply here), Capital One Platinum Prestige, and Wells Fargo Platinum.

I’m just one man, of course, with one man’s opinion. Here’s a summary of the opinion of the general public.

4 Consumer-Friendly Credit Cards, Kelli B. Grant, SmartMoney, May 7, 2009

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Credit Cards That Already Follow the Rules

So the The Credit Cardholders’ Bill of Rights Act of 2009 (full details and timeline) passed the U.S. House of Representatives by a wide margin, indicating strong support from Republicans, Democrats and Independents alike.

Of the 427 Representatives who bothered to vote, 70 voted against it. So that’s about 84% in favor. I thought I’d take a trip through various parts of the Web to see how random groups of Americans felt about it.

Last August, CreditCards.com reported a survey which concluded that 74% of respondents agreed at least somewhat that “The government should regulate the credit card industry more carefully”.

A New York Daily News Poll which phrased the question as “Are credit card companies’ fees charges fair to consumers?” (which isn’t really what the Bill is about) found that 88% of respondents say “No.”

Over at OpposingViews.com, with only 250 votes so far, 75% of people think the Bill will help consumers.

A recent CNBC poll question: Do you think you have been unfairly treated by a credit card issuer? sees 67% responding “Yes”.

It’s not just Americans, either. A recent poll reported by the CBC in Canada says that 82% of Canadians want some kind of “bill of rights” to protect them when disputing unfair practices by the credit agencies.

It looks to me like the U.S. House vote is directly in line with what the public wants. I’m not sure I can tell you the last time I noticed that happening. If this topic is new to you, see what all the fuss is about.

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Public Reaction to the Credit Cardholders’ Bill of Rights

The following timeline and details will be updated as the Credit Cardholders’ Bill of Rights, now merged with and known as the Credit Card Accountability, Responsibility and Disclosure (CARD) Act, progresses through Congress and as the bill makes its way to the President to be signed into law. Visit this article often for the latest information and to read the current versions of the bills as they are amended, voted upon, and revised.

Credit Cardholders’ Bill of Rights Reverse Timeline

May 22, 2009: President Obama signs the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009, (which has been merged with the Cardholders’ Bill of Rights), H.R.627, and the new regulations will begin to take effect starting in February 2010.
May 20, 2009: The House of Representatives agrees to the Senate’s version of H.R.627 and sends the bill to the President to sign.
May 19, 2009: The Senate passes H.R.627 with a vote of 90 to 5.
May 12, 2009: The bipartisan Senate Banking Committee has agreed on the Credit CARD Act of 2009 (S.414).
May 11, 2009: The Senate proposed an amendment to the Credit CARD Act (H.R.627) as passed by the House of Representatives.
April 30, 2009: The House passes H.R.627 with a bipartisan vote of 357 to 70.
February 11, 2009: S.414 is introduced in the Senate
January 22, 2009: H.R.627 is introduced in the House.
January 14, 2009: The Credit Cardholders’ Bill of Rights (S.235) is introduced in the Senate.

Credit Cardholders’ Bill of Rights Details

On April 30, 2009, the House of Representatives passed a bill commonly called the Credit Cardholders’ Bill of Rights Act of 2009. This bill goes a long way to end some deceprive practices used by credit card companies to lure and trap consumers into expensive debt. While many of the problems resulting from these practices can be avoided by using credit wisely or not at all and adjusting your expectations to assume that the companies only care about their bottom line, not their customers, not all the blame can be placed on the consumer.

Thus, the government is stepping in with this effort to protect credit card users from practices such as abrupt rate increases, retroactive rate increases, and double-cycle billing, a situation in which customers are charged interest even after the last monthly bill to include charges for spending is fully paid off.

Here are some interesting points included in the House version of the bill.

• Credit card issuers will be required to maintain low introductory rates for at least six months.
• Issuers must warn consumers if they are spending close to their credit limit, allowing them to avoid a penalty.
• Issuers cannot charge customers a fee for paying their bill over the phone or online.

The changes to credit card regulations will begin taking effect in February 2010. When President Obama signed the bill into a law on May 22, 2009, he reminded the public about the importance of personal responsibility:

So we’re not going to give people a free pass; we expect consumers to live within their means and pay what they owe. But we also expect financial institutions to act with the same sense of responsibility that the American people aspire to in their own lives.

A similar bill passed the house last year but did not get much further.

Read the current version of the Credit CARD Act of 2009 (formerly Credit Cardholders’ Bill of Rights), H.R.627, as presented by the Congress to the President (May 20, 2009)

The following are older versions of related bills:

Read the Senate’s Credit CARD Act of 2009, S.414 (February 11, 2009)

Read the Senate’s Credit Cardholders’ Bill of Rights, S.235 (January 14, 2009)

U.S. House acts to protect credit card users, Reuters, April 30, 2009

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The Credit Cardholders’ Bill of Rights Act of 2009 (Credit CARD Act)