Consumers Get a Break on Credit Cards – Finally

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First the bad news: these rules don’t take effect until July, 2010. Under the new rules for the good news: today the Federal Reserve Board issued strict new rules barring the deceptive and punitive practices of many credit card issuers. The policy statement is quite extensive, but these are the rules I think are most important:

The Interest Rate on Existing Balances Can’t Increase

For the most part, the interest rate that applies when you make a charge is the rate that will apply until the day you pay it off. The exception occurs when you’re more than thirty days late on a payment. In that case, credit card issuers can still increase your interest rate.

Extension of Grace Periods

The grace period – typically considered to be the time from the date the bill issued to the date the payment is due – has been shrinking. Some issuers are allowing as little as 15 days. If your bill was late, you were in trouble. Under the new rules they’ll be required to give you at least 21 days to pay the bill.

No Deceptive Credit Card Offers

You’ve probably received offers promising a 6% interest rate, only to receive a rate of 27% after you apply. That will no longer be allowed. Under the new rules the rate they offer initially will have to be close to the rate you finally receive.

No Two-Cycle Billing

I really hate two-cycle billing. Under this policy, you continue to be charged interest over two billing cycles if you carry a balance. For example, we made a partial credit card payment in January, then paid off the bill in full in February, but we were still charged interest through March.

No Universal Default

Currently, some issuers will raise your interest rate to as much as 29% if you have a late or missed payment on a card from another company. The new rules abolish that practice.

Payments Must Be Applied Fairly

If you have different interest rates for different balances, most issuers pay off the lowest interest rate first. The new rules require them to apply payments above the minimum to the highest interest rate balances first.

Payments Due on Weekends Won’t Be Late

Some issuers will consider your payment late if it’s due on Sunday and arrives on Monday. They may also set a due time of noon. Under the new rules the due time must be 5 PM, and bills with weekend due dates must be accepted as paid on time if the payment is received by the next business day.

No Fees for Online or Telephone Payments

These fees are ridiculous, and the Fed agrees. Under the new rules, you can’t be charged for making a payment through their website or by phone.

Zero Interest Is Zero Interest

This is the only one I’m not sure about. Currently, you can receive a rate of 0% until a certain date, but deferred interest accrues at the full rate. If you don’t pay off the balance before the final date, then you will have to pay all of the interest. Deferred interest will no longer be allowed – if they say 0%, it’s 0%. My concern is that this valuable financing option will disappear. As I’ve mentioned before, I use the Goodyear card to take advantage of deferred interest. However, I always pay the bill off before the interest applies. Most people don’t, so I can see why the Fed would ban the practice. The full rate is usually 22% or more.

These rules are a big win for the average consumer. True, they could have gone further, but it’s a place to start. The only downside is the delayed effective date. I’m sure the credit card issuers will take advantage of that time to bilk consumers for as much as they can. Protect yourself by being very careful with your credit for the next 18 months.

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