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Credit Card Rules Begin to Change; Issuers Slash and Burn

Aug 21, 2009 - New credit card legislation designed to give consumers relief began its first phase last week. But while the CARD Act promises protection for consumers, it also could translate to meaner credit card companies.

Starting on Thursday, credit card issuers were required to give customers 45 days notice before raising their interest rates, instead of the previous 15-day rule. Credit card companies must also mail bills 21 days before the due date, rather than the previous 14 days. When the legislation becomes fully active early next year, credit card companies will be prohibited from raising interest rates on existing balances unless the borrower is at least 60 days late with payment. After six months of on-time payments, the old rate will be restored.

While the new rules take partial effect going forward, for the next six months credit card owners may actually be in a vulnerable spot. Credit card companies are looking to preemptively recoup lost fees they anticipate when the legislation takes effect next year, meaning consumers could experience raised rates, slashed credit limits, scaled down rewards programs, reduced grace periods, and even shuttered accounts. No matter if customers have been diligent and smart about their credit, they have been and could continue to be punished.

In one example of fallout from the CARD Act, new regulations will prohibit interest rate changes on existing balances except under limited conditions. One of these conditions is if the card carries a variable indexed interest rate. The results are starting to be shown; in a recent survey by Consumer Action, a watchdog organization, more than half of credit cards included had transformed from fixed rates to variable rates, allowing for easier future changes. 

Another prime example? Rewards programs. Card issuers across the board are scaling back programs offering rewards like frequent-flier miles, cash rebates, and other redeemable prizes. Discover has eliminated part of their renowned cash-back program, Citi has doubled the amount of points needed to redeem airline vouchers, and other examples abound. Even worse, with late payments come forfeiture of all reward points earned to date.

Credit card companies cite the unstable economy and the natural evolution of credit as the reason why they're making these moves. They also point to different rewards being offered in lieu of old favorites, showing that some recent changes can actually benefit the customer.

In any case, consumer groups and advocates warn credit card holders to inspect and understand their card's terms and conditions over the next few months. Know that many changes are not being clearly labeled, and customers may need to put some time and energy into dissecting their credit card's fine print.


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