Credit-card holders, watch for changes in terms

Dallas Morning News

The bulk of sweeping new credit-card regulations won’t take effect until February, and many card issuers are already raising interest rates and slashing credit lines.

So what will happen after the new rules take effect?

Although the rules will prohibit certain practices related to interest rates and fees, there’s still room for issuers to fudge in other areas, some credit experts say.

“They’re going to find loopholes in the legislation,” said Curtis Arnold, founder of CardRatings.com, a credit-card information Web site. “There’s no way you can cover every single potential consumer topic.”

For example, the new rules prohibit certain fees but “they do not put any restrictions on fees for balance transfers, cash advances or late payments,” said Bill Hardekopf, chief executive of LowCards.com, a credit-card Web site.

Already, some card issuers have raised their balance-transfer fees, he said.

The credit-card industry says it will comply with the law passed by Congress in May.

“We at the Roundtable certainly don’t condone any illegal practices and skirting of the law,” said Irving Daniels, vice president of banking and securities at the Financial Services Roundtable, an industry group.

“We are strong advocates of consumer protection and safety and soundness, and we think there should be regulations and laws in place for consumer protection and safety and soundness,” he said.

But Daniels said card issuers must be able to price their product according to a consumer’s creditworthiness.

The industry has said that the new law will make credit tighter. “Given what has taken place and the recent legislation, we think that credit will be limited because issuers will have less of an opportunity, less flexibility, to manage risk,” he said.

Although card issuers know they’re under a hot spotlight, not every company will toe the line, Arnold said.

“There’s still going to be a lot of dirty pool, and not every issuer is going to try to be consumer- friendly,” he said. “They’re going to try to find loopholes.”

Arnold said InfiBank, his credit-card company, notified him that it was setting a minimum rate of 15.99 percent for his annual percentage rate (APR).

“This is a classic example of a loophole,” he said. “The Fed could cut rates all day long, but if your account has a floor on it, you’ll never get any benefit of it. There’s no verbiage in this law that talks about rate floors.”

Neither does the law impose rate caps.

The new law also leaves room for a loose interpretation of some requirements, said John Ulzheimer, president of consumer education at Credit.com, a credit-information Web site.

For example, the law requires penalty fees to be “reasonable and proportional to the omission or violation.”

“The wording of this is way too subjective and allows the issuer to determine what they feel is ‘reasonable,”’ Ulzheimer said.

The law also requires promotional rates to last at least six months.

“Six months from what date?” asks Ulzheimer. “The date opened? The date of the first charge? The date of the first payment?”

More card issuers also are expected to bring back annual fees on cards.

“Eighty percent of the credit cards right now do not have an annual fee,” Hardekopf said. “We fully expect that to go up and up.”

He also expects to see cutbacks in reward programs and cash rebates.

“That has already taken place since the start of 2009 and will likely continue through the year,” Hardekopf said.

He recommends consumers pay attention to their rewards by looking at the terms and conditions of their card.

“Issuers can make subtle changes in the reward program that are hard to spot, like changing a tier needed to reach a certain payout or requiring purchases over a longer period,” Hardekopf said. “Maximize the points you have and use them sooner rather than later because these could also be reduced.”

Also, more card issuers may take a hard line against cardholders who miss a payment by stripping them of all their reward points, said Odysseas Papadimitriou, chief executive and founder of CardHub.com.

Some card issuers already do this.

For example, Discover Card says reward miles don’t expire, but you forfeit the miles “if your account is closed for any reason or inactive for 18 consecutive months or if you fail to make the minimum payment due by the payment due date for two consecutive billing periods.”

“That’s why I advise people to get cash-back credit cards instead of miles and points credit cards,” said Papadimitriou, former senior marketing director for Capital One. “With cash-back cards, you get your cash back at the end of every month. The other one they can change the redemption rules pretty easily.”