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.
Updated January 12, 2011 and originally published August 24, 2009. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @flexo on Twitter and visit our Facebook page for more updates.