The Amateur Financier

Happy CARD Day!  If you’re asking yourself, ‘just what the heck is Roger talking about?’, you’re in luck; in honor of CARD Day, I’ll take a few moments to go over the fun and joy of the CARD Act and how it affects you, and your credit cards, too.

The Credit Card Accountability, Responsibility, and Disclosure Act of 2009, more commonly called the CARD Act (get it?  get it?) imposes new rules on credit card companies.  The rules are designed to protect credit card users from some of the more, uh, ‘questionable practices that credit card companies have used in the past.  A fact sheet goes over all the gory details of what is now longer allowed in the world of credit cards; a few of the highlights include:

-Restricting rate increases on existing balances.
-Contract terms must be constant for at the least first year of service
-Ends ‘double-cycle’ billing (when the balance from the previous month would be used to calculate the owed interest, enabling the companies to charge for balances that had already been paid off)
-Requires credit card users to opt-in before they can go over the limit on their cards.
-Applying payments over the minimum to the highest interest rate debt.
-Most sobering to anyone who keeps a balance, the credit card companies will also have to provide the amount of time needed to pay off the total amount owed if only the minimum payment is paid.

All told, a great victory for credit card users!  Take that, credit card companies!  Under these new rules, things are going to be much better for consumers; no more worries about abuse from credit card companies.  If a one or two major credit card providers have to go bankrupt, so be it.

Except…they haven’t, have they?  You may have noticed that American Express hasn’t packed up their bags and left town, nor that MasterCard didn’t tell their employees not to bother coming in today.  Heck, if you’ve been following the Olympics, you’ve probably noticed that not only is Visa advertising repeatedly, but they are offering the opportunity to win trips to every Winter Olympics in the future.  If these regulations are rein in credit card companies so much, how do they still have so much money.

Unintended Effects

As you might have guessed, the credit card companies haven’t spent the nine months since this bill was first signed (back in May of 2009) just waiting for the new rules to come into effect.  In the time they had to prepare, there have been signs of the credit card environment as it will exist under this law; higher interest rates, more fees, and less rewards.

It’s also harder for customers with low credit scores to get cards (or to keep cards when they don’t use use them often), and credit limits are being lowered for many credit card users.  Ironically, some of the people this legislation was designed to help may end up suffering the most by being unable to get any credit at all.

(All of this doesn’t touch upon one of the more controversial elements of the CARD act, preventing those who are under 21 from getting a credit card without either (a) proof of income or (b) a co-signer.  I’ve maintained that this is just common sense; if we were talking about 4o year-olds rather than typical college students, I can’t imagine it being a major issue.  The only reason college students get targeted by card companies is the assumption that the Bank of Mom and Dad will be around to bail them out.  Of course, there are those, like Stephanie of Poorer Than You, who might vehemently disagree.)

What to Do as a Credit Card User

What are you, the hapless credit card user, supposed to do?  For the most part, the same thing you should have been doing even before this act went into effect.  Pay off your credit card balance in full each month, don’t charge more than you can pay off, and work to pay down your debt as aggressively as possible.  Basically, the Commandments of Credit Card usage are still in effect.

You will may have to make some changes to your behavior as a result of the new rules, though.  With companies more likely to cut your credit limit or close your card, it’s important to regularly use all your cards in order to keep the accounts from being closed.  It’s also important to have an emergency fund other than your cards, as the credit line you are depending on may disappear just when you need it.  If you’re trying to build up points for rewards, also be sure to keep an eye on the rules; it’s possible that the number of requirements and restrictions will increase as companies try to maximize their profit levels.

Follow these precautions, the CARD rules will be nothing but good for you!

• The Benefits of a Credit Card with a Low Spending/Credit Limit
• Your So-Called Rewards Cards Exposed - Again
• Debt Repayment Methods
• Is a Loan Ever a Better Option than a Credit Card?
• How To: Avoid the Dangers of Store Credit Cards