Saturday, May 23, 2009
Here is a look at some unintended consequences of the new credit-card law that are likely to occur:
HIGHER RATES: Issuers are considered certain to bump up annual percentage rates soon to compensate for the fact they can’t increase them on new customers for one year after the regulations take effect in late February. Not only are introductory rates likely to rise, APRs on existing accounts may well go up too — especially if you do anything to show that you are a greater credit risk.
If you are late on a payment, exceed your credit limit or even use too much of your limit, you could see an immediate increase in your rate, according to Bill Hardekopf, CEO of LowCards.com.
ANNUAL FEES: The free ride is likely to end for many who use their credit cards as a convenience and pay off their balances in full every month. Squeezed by the economy and further by this law, banks will now target people who have avoided paying an interest charge or an annual fee — until now.
LOST GRACE PERIODS: Trying to make up for lost revenue, banks are considering charging interest from the date of a purchase instead of allowing a grace period, now typically 20 to 25 days. The best that cardholders may be able to hope for is an option from their issuer, according to credit card expert Ben Woolsey: Either pay an annual fee or lose your grace period.
OTHER FEES AND PENALTIES: The new regulations put no restrictions on fees for balance transfer, cash advance or late payment. All are likely to rise, as foreshadowed by Bank of America’s and Discover’s plans to boost their balance transfer fees to 4 percent from 3 percent on June 1.
TIGHTER CREDIT: Consumers with lower credit scores will find it harder to persuade strapped card issuers to give them credit because of the new regulations. Even those with respectable credit histories may have difficulty getting approved for new cards or find their credit limits lower than in the past. That means more people may resort to payday lenders and pawn shops, said Greg McBride, senior analyst with Bankrate.com.
CUTBACK IN REWARDS PROGRAMS: Card companies have long used reward programs to retain customers’ loyalty, giving them cash-back rewards, frequent-flier miles and other perks. Now they won’t be able to subsidize those programs when they are not making as much from finance charges and penalty fees. under the new regulations.