Credit Card Fees, Terms Destined to Change

President Barack Obama is expected to sign into law a credit card reform bill passed by Congress earlier this week. Under the new law, credit card issuers will face curbs on retroactive interest rate increases, be required to give customers 45 days’ notice for any future rate increases and let customers pay their bills online or by phone without additional fees.

The law also aims to better inform consumers about the interest they are paying. Credit card companies will be required to show customers how long it will take them to pay off balances when making minimum payments and provide information on consumer counseling and debt managment services.

The credit card industry says the new law will blur the line between customers with good credit and those with bad or marginal credit as card issuers will have fewer options for passing along “risk-based” fees.

Edward Yingling, president and CEO of the American Bankers Association, predicted the following; “ 1) Less credit will be available generally, which means some consumers and small businesses will not be able to obtain credit cards at all (particularly younger people and start-up small businesses); others will have smaller credit lines. 2) In some cases, higher interest rates will need to be charged to cover the increased risk. 3) Those who have managed their credit well and currently have very good credit card deals will find that card companies are limited in their ability to distinguish between them and those that have credit problems; the result will be some subsidy from those that manage their credit well to those that have problems, affecting negatively the terms the former will receive.”

As a result, industry watchers say that interest rates and fees on cards will rise, popular rebate and rewards programs could be reduced or eliminated, more cardholders will pay annual fees and grace periods for purchases could be reduced.

The new law would go into effect in February 2010. “(During) the next nine months we’ll see a lot more rate hikes and fee changes as issuers get their shots in while they can,” said Bankrate Senior Financial Analyst Greg McBride.

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