New Credit Card Rules, What Does it Mean for Consumers Already Crunched for Credit?

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In a world where debt has become the currency of necessity, what affects will new credit card legislation have on helping Americans in debt.

Monday, Feb. 22, 2010, marks the biggest day in credit card reform history, the passing and enacting of federal regulation aimed at curbing increasingly high interest rates and fees on credit card products. It may be a step in the right direction, but many consumer advocates say there still remains a large loopholes in the new regulation.

First, it is important to understand these changes and how they will affect Americans.

You can now enjoy no interest rate increases on the first 12 months of any new credit. However, you rate could still be raised if you don't make your minimum payment within 30 days of the due date, or if the creditor disclosed to you in the terms and conditions that they will be raising your APR.

Second, creditors will not be able to increase your rate on existing balances. So if your rate does increase it is only on future purchases, not on existing balances.

Rate increases now require a 45-day advance notice from the creditor, even if it is dues to the consumer's default.

No more double billing cycle finance charges. Meaning interest cannot be calculated based on previous charges that have been paid off, only on the immediate past month's charges.

Limited fees on subprime credit cards. For people who have bad credit and can only get bad-credit credit cards, this is a great amendment. Now fees are limited to 50% of the credit limit and only 25% of those fees can be tacked on at the beginning, the rest have to be spread out over at least five billing cycles.

Billing statements must be delivered at least 21 days prior to a payment due date.

Payments received by 5 p.m. on a Friday are considered on time, even if they can't be processes that day or over the weekend. The same goes if your payment due date is on a holiday, Saturday or Sunday.

Payments made to any credit card, above the minimum payment, must be applied to the highest interest balances. This will help to lower interest paid on debt overtime.

Credit card companies are now required to disclose to the consumer if they only pay minimum balances, how long it will take for them to pay off their existing balance, and how much they will be paying in interest over that period of time.

This may sound great but some consumer watch dogs are still stressing over the loopholes that creditors can still access. While over-the-limit fees have been eliminated, unless the consumer opts-in, credit card companies are still processing over-the-limit transactions and then hitting customers with a "late fee." Companies are also increasing APR rates on credit cards once a consumer is more than 60 days late, and then reimbursing them, for extra interest charged, if they pay the next month on time. Watch out for 6 month no interest cards, because if you do carry a balance over 6 months, they will retroactively charge interest on your remaining balance.

And the biggest loophole is that interest rates are still decided by the creditor, so penalty rates of 35% or 40% are still permissible under federal law, even though they violate usury laws of many states. And subprime credit card companies are making up for lost income, from the fee limitations, by charging interest rates of 79.9%.

Either way banks are not in the position to take losses and will recover their lost revenue by using loopholes and making money off of other currently free services. In the near future free checking and free online banking and bill pay options, may no longer exist.

With any credit product, it is ALWAYS important to read ALL the terms and conditions associated with it.

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