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
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
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
A little earlier today, the House of Representatives passed the compromised form of the stimulus bill (American Recovery and Reinvestment Act of 2009), and the Senate is expected to pass the stimulus tonight. It won’t be long before the bill is signed into law by President Obama and the appropriated funds are doled out to various programs and other recipients.
The compromise that was worked out by a small committee of Democrats and Republicans behind closed doors is now available in full, although I find it unlikely that all voting members of Congress have read the entire document. If you have the time and the inclination, and you want to read the entire bill, here are the documents.
February 19 update: The White House has now made available the final printed and signed law. Read the American Recovery and Reinvestment Act of 2009 [pdf] here.
Original February 13 information: Here is the final draft of the bill with proofreading marks before final printing and signing.
Recovery Bill Part A [pdf]
Recovery Bill Part B [pdf]
Part B contains many of the items we’ve been discussing on Consumerism Commentary recently, such as the $400/$800 Working Americans tax credit and the $8,000 tax credit for new homebuyers (reduced from $15,000).
When talking about the 790 billion dollar stimulus bill currently nearing the end of its congressional marathon, it’s tempting for people to focus on the direct, short-term benefits, namely a $400 tax credit, and how such a thing won’t go very far in benefiting most people.
I tend to agree, but I’m also the first to admit that I’m no economist, in fact I’ve never studied macro-economics, and everything I know about personal finance I’ve learned by making mistakes. In my case, an $800 tax credit (married, filing jointly) would go toward paying down the $6,000 IRS bill we were surprised with in 2008.
That tax credit is just one part of the American Recovery and Reinvestment Act (AKA stimulus bill, AKA stimulus package, AKA spending bill, AKA “pork-filled liberal wish list”). For those of us who are already struggling in the post-toxic asset economy, here are some other highlights that should, even if indirectly, help make life a little easier:
- $4 billion for job training
- one-time $250 payments to Social Security recipients, poor people on Supplemental Security Income, and veterans receiving disability and pensions
- my personal favorite: $7.2 billion to bring broadband Internet service to underserved areas
- $24.7 billion to provide a 65 percent subsidy of health care insurance premiums for the unemployed under the COBRA program
- $5 billion to weatherize modest-income homes
- $11 billion toward a so-called “smart electricity grid” to reduce waste
- $44.5 billion in aid to local school districts to prevent layoffs and cutbacks
- $4 billion in grants to state and local law enforcement to hire officers and purchase equipment
- About $70 billion to spare about 24 million taxpayers from being hit with the alternative minimum tax in 2009. The change would save a family of four an average of $2,300
- About $14 billion to provide a $2,500 expanded tax credit for college tuition and related expenses for 2009 and 2010
- $4.7 billion to expand the Earned Income Tax Credit for low-income families with three or more children
- $6.6 billion to repeal a requirement that a $8,000 first-time home buyer tax credit be paid back over time for homes purchased from Jan. 1 to Nov. 30, unless the home is sold within three years
Those bullet points were pulled from this Associated Press story. Check out the whole list and see if anything else strikes your fancy. There are bound to be things in there you don’t agree with, but I’m personally proud of our Congress for managing a workable compromise in such a short amount of time.
It’s also important to pay attention to your state and local news to see how they’re planning on using the funds being offered. Try searching Google News for “stimulus bill” and your closest city.
This text refers to the original $15,000 tax credit amendment for all homebuyers which has now been superseded. The tax credit is now $8,000 and is available for people who purchase a house between January 1, 2009 and November 30, 2009. Here is how to claim the $8,000 home buyer tax credit on your 2008 or 2009 tax return.
As senators jockey for position and work to coming to an agreement that will best help the American people and the overall economy, the stimulus plan originally pushed forward by Barack Obama is changing. Last night, the Senate voted to include an amendment to the bill which would provide a tax credit for homebuyers. If the bill passes the Senate, and if this amendment remains included when the Senate and House negotiate, and if the President signs the bill into law, anyone who purchases a house after the bill is signed into law will be entitled to a tax credit.
The credit would be 10% of the purchase price of the house, up to $15,000. This idea is modeled after a $2,000 tax credit for homebuyers that helped the country rise from a recession in 1975. The credit would be spread over two years. For example, if you buy a house with a purchase price of $300,000, you would qualify for the maximum credit of $15,000. The first year you claim the credit, you would receive $7,500, and you would receive the remaining $7,500 the next year.
Additionally, in its current form, the requirement to repay the credit over time will be waived. The estimated cost of this amendment is $18.5 billion. This credit, which was once set aside for first-time homebuyers, would now apply to anyone who purchases a house, including investors, speculators, flippers, and any family struggling to afford a place to call home.
So does it make sense to go out and buy a house this year if you weren’t planning to, just to receive this tax credit? I’m not so sure. The main driver for buying a house — one in which you plan to live, not one you with which you plan to invest, or more accurately, speculate — should be necessity. Incentives for purchasing an asset stands to prop up the price of that asset beyond the price the market sets for it on its own. This boost helps real estate agents and investors more than families.
Please keep in mind that the plans for this credit are subject to change until it the bill is signed into law by the President of the United States.
Are you more inclined to buy a house this year with the knowledge that you will receive up to a $15,000 tax credit if this bill is signed into law as it currently stands?
Update: the current text of this amendment stipulates that only houses purchased after the bill is signed into law will qualify for the $15,000 tax credit. The final rules will depend on what the Senate and House of Representatives agree to before sending the bill to the President.
February 11 Update: As of this moment, the idea of the $15,000 tax credit may be nothing more than a dream. According to reports following the compromise between the House of Representatives and the Senate, this benefit has been “significantly reduced.” It may be another day before we know exactly what that means.
February 12 Update: The $15,000 tax credit has been confirmed as being “significantly reduced” to $8,000 for first-time homebuyers only and only houses purchased before the end of November will qualify. This $8,000 tax credit will not need to be repaid, unlike the current $7,500 first-time homebuyers credit.
February 13 Update: The Senate and House of Representatives have both passed the compromise version of the stimulus bill. Read the complete stimulus bill here, and you’ll be a step ahead of many of the congressmen who didn’t have a chance to read it before voting.
We reported earlier on some new regulations that attempt to curb “predatory” practices by credit card issuers, like an end to Universal Default and more accurate credit offers.
One of the interesting things about these new rules is that Congress didn’t vote on them, they were approved by a Federal Reserve committee, and they were set to go into effect in July 2010, or sooner, if a given individual company gets around to it.
The Dallas Examiner has a report out stating our incoming President’s support for such reforms, and saying that a similar bill might still go through Congress, which means the rules would have to be enacted within 90 days of the bill being signed into law.
One thing that didn’t make it through the recent Federal Reserve regulations was the idea of a Credit Card rating system, a proposal for which has been on Obama’s campaign Web site since the beginning, or at least since the first time I looked at it. Here’s the summary of the idea:
Obama and Biden will create a credit card rating system, modeled on five-star systems used for other consumer products, to provide consumers an easily identifiable ranking of credit cards, based on the card’s features. Credit card companies will be required to display the rating on all application and contract materials, enabling consumers to quickly understand all of the major provisions of a credit card without having to rely exclusively on fine print in lengthy documents.
We’ll keep you updated on future developments to this idea. In the meantime, welcome to the First 100 Days.
Every Tuesday, Smithee presents an article about his own experiences with and observations about credit cards.
Do you have a credit account with Citigroup? I probably do. I think I started one with Rooms To Go when we started paying for our very comfortable bed. They said it would be interest free for however-many months. I figured out how much we’d have to pay per month to make sure we’d never see any interest accrue, but nothing’s set in stone.
For example, despite a pledge made to Congress in 2007, Citigroup is raising its credit card interest rates for many if not all of its customers by 2 or 3 percent. Citigroup has pointed to the “difficult market environment” as the cause for this euphemistically-phrased “repricing.”
Here’s the weird part: in the last four weeks, the average credit card rate has decreased, which doesn’t point to a system-wide difficult environment. Also, since nobody really knows what’s going with the $700B bailout/rescue plan, there’s a fairly good chance that some large part of our taxpayer money might go to rescuing credit card companies.
I’m not much of a conspiracy theorist, but with all of this news appearing in the same seven-day period, it seems to me like the people making decisions aren’t talking to each other very well. That, or Citigroup is taking advantage of otherwise innocent Americans. Oh, there are those contracts we agree to, of course. But in this instance, Citigroup made a pledge to Congress. That should be worth something, don’t you think?
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