Re: Credit card reform: Read the fine print


"Sordo " <sordo @recdep.com> wrote in message
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Credit card reform: Read the fine print

Companies are likely to raise rates, penalties to recoup lost revenue

By Dave Carpenter
Associated Press

CHICAGO -- The new credit card law is receiving widespread kudos as a
victory for cardholders over the lenders that impose "gotcha" fees and
penalties with scant justification and little notice.

Indeed, an industry that has been virtually unregulated now will be
reined in many ways, to customers' benefit. Interest rates no longer
will be allowed to be raised retroactively if you pay your bills.
Confusing terms in the fine print will no longer be allowed. Terms will
be clearer, over-the-limit fees curtailed and rates fairer.

Still, there are pitfalls to the legislation passed by both houses of
Congress and signed into law by President Barack Obama on Friday, and
consumers are likely to feel the effects.

"People can start to feel a lot more comfortable about the rules of the
game," said Adam Levin, chairman and founder of Credit.com, a San
Francisco-based company that provides education and information about
credit products. "But there will be some fallout, and it might be a
short-term negative."

Here is a closer look at some unintended consequences of the new law
that are likely to occur:

» HIGHER RATES: Issuers are considered certain to bump up annual
percentage rates soon to compensate for the fact they can't increase
them on new customers for one year after the regulations take effect in
late February. Not only are introductory rates likely to rise, APRs on
existing accounts might go up, too, especially if you do anything to
show that you are a greater credit risk.

If you are late on a payment, exceed your credit limit or use too much
of your limit, you could see an immediate increase in your rate,
according to Bill Hardekopf, CEO of LowCards.com, which tracks credit
card offers. He recommends consumers pay their bills early, send in more
than the minimum and not use more than a third of their credit limit.

Even that might not save them. The law does not put a cap on the
interest rate that can be charged. Issuers still will have the ability
to raise rates at any time for any reason, although that won't apply to
existing balances unless a customer is 60 days overdue with a payment.

The banking industry itself hints at the possibility of across-the-board
rate hikes. "The business model has changed," said Peter Garuccio, a
spokesman for the American Bankers Association. "With that there will be
ramifications, some not so good for the consumer."

» ANNUAL FEES: The free ride is likely to end for many who use their
credit cards as a convenience and pay off their balances in full every
month. Borrowers who pay off their balances every month might be
assessed annual fees and lose rewards programs, said Kansas City, Mo.,
attorney Karen Garrett, who focuses on bank regulation. Unlike in many
other countries where free cards are rare, only about 20 percent of U.S.
credit cards currently carry annual fees, according to LowCards.com. But
that figure is expected to climb as more follow the lead of American
Express with its green, gold and platinum cards. Expect to pay at least
$50 to $100 a year.

» LOST GRACE PERIODS: Trying to make up for lost revenue, banks are
considering charging interest from the date of a purchase instead of
allowing a grace period, now typically 20 to 25 days. The best that
cardholders might be able to hope for is an option from their issuer,
according to credit card expert Ben Woolsey: Either pay an annual fee or
lose your grace period.

"They've got to change the pricing structure of these cards," said
Woolsey, director of marketing and consumer research for
CreditCards.com, a privately held company that offers consumers
comparisons on credit cards. "They can't let such a huge portion of
their portfolio not contribute any profit anymore."

» OTHER FEES AND PENALTIES: The new regulations put no restrictions on
fees for balance transfer, cash advance or late payment. All are likely
to rise, as foreshadowed by Bank of America's and Discover's plans to
boost their balance transfer fees to 4 percent from 3 percent June 1.

Being 60 days late could be especially costly for consumers. Currently
card companies impose penalty rates averaging about 28 percent, or
double the average standard rate. But that could rise to 30 percent or
35 percent as the companies scramble to make money where they can, said
Nick Bourke, manager of the Safe Credit Cards Project at the Pew Health
Group.

» TIGHTER CREDIT: Consumers with lower credit scores will find it harder
to persuade card issuers to give them credit because of the new rules.
Even those with respectable credit histories might have difficulty
getting approved for new cards or find their credit limits lower than in
the past. That means more people might resort to payday lenders and pawn
shops, said Greg McBride, senior analyst with Bankrate.com.

» CUTBACK IN REWARDS PROGRAMS: Card companies have long used reward
programs to retain customers' loyalty, giving them cash-back rewards,
frequent-flier miles and other perks. Now they won't be able to
subsidize those programs when they are not making as much from finance
charges and penalty fees under the new regulations. Industry officials'
threats during the lobbying process to cut them back sharply could prove
to have been a bluff, but analysts and consumer experts still expect
them to be trimmed to some extent.

» SMALLER CARD ISSUERS MIGHT VANISH: Six mega-companies issue 80 percent
of all credit cards: American Express, Bank of America, Capital One,
Citigroup, JPMorgan Chase and Discover Financial Services. They are
unlikely to pull back from the business because of the new law. But some
of the smaller banks and issuers that make up the other 20 percent are
likely to stop issuing cards. That's because of both the administrative
costs of implementing the required changes and the inability to raise
rates in some cases, according to Mike Brauneis, managing director for
Protiviti Inc., a business consulting and auditing firm.

The bottom line of the whole reform effort is that despite the big
strides forward taken by the new law, it doesn't abrogate consumers'
responsibility to handle credit card debt cautiously and read the fine
print of their monthly statements.

"Certainly it's not a silver bullet to keep consumers from getting in
over their heads with credit card debt," Brauneis said.
Additional Facts
WHAT COULD BE LOST

» REWARD PROGRAMS: Cash-back, frequent-flier miles and other perks might
be a thing of the past.

» SMALLER CARD ISSUers: Smaller banks and issuers are likely to stop
issuing cards because of administrative costs.

WHAT MIGHT BE ADDED

» ANNUAL FEES: Expect to pay at least $50 to $100 a year to have a card,
especially if you pay off your balance every month on time.

» MORE PENALTIES: Fees for being late, taking a cash advance or
transferring a balance are likely to increase.

Yup...I for one am planning to do as I did back in the years before the
credit cards came - pay by cash or by check. Credit cards with annual fees
and/or being charged interest from date of purchase renders using them not
convenient for me and my wallet.


.

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