New Credit Card Rules: The Good and the Bad

The new credit card rules go into effect tomorrow. Here's a summary from the Federal Reserve Board about the changes.

It's not all good news for the consumer.

In the end, Congress made banks give up some abusive tactics while allowing them ample time and latitude to dream up new ones.

Bottom line: The new day brings new fees. [More...]

Watch out for:

Attractive introductory rates for 12 months which will then rise substantially. Read the fine print.

Rate increases: Don't be 60 days late. The prohibition against rate increases during the first year or without 45 days notice might not apply.

Annual fees: Many cards will now have them. This helps the card issuers make money on those who pay their bill in full every month, avoiding interest.

Application fees: Really. To apply for the card. It's another form of interest payment. Heads up though: Annual and application fees can't be more than 25% of your credit limit.

Late fees: No, they haven't been banned. They may get "tiered" based on the balance owed.

Over-limit fees: You get to tell the credit card company if you're willing to pay them. If you don't, your purchase will be declined on the spot. Cards without overlimit fees: American Express and Discover.

And the credit card companies can still cut your credit limit and raise your rates without notice.

Make sure you use all your cards, because the banks are going to charge fees for "dormant accounts." Some other sneaky things to watch out for:

.... more annual fees; higher charges for balance transfers; fees for inactivity; surcharges on foreign transactions; or fees to reinstate expired points or miles on rewards cards. Some banks, for instance, are already charging customers $1 for getting their credit card statement in the mail, rather than getting it online.

And, you'll be seeing a surge in credit card offers in your mailbox. The banks have been preparing for this day for months, and they are primed and ready to solicit you with new offers. Again, read the fine print.

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    Bank of America (5.00 / 2) (#9)
    by TeresaInSnow2 on Sun Feb 21, 2010 at 01:14:48 PM EST
    Bank of America notified me in November that they were going to charge me an annual fee starting in Feb(because I'm a credit card deadbeat, one who pays the whole balance every month).

    I immediately called and cancelled the card.  They refused to cancel it for more than THREE solid months and attempted to tack on the annual fee anyway.  After many phone calls, letters, and threats, I think the card is cancelled now, although I'm still getting those horrible credit card checks.  I figure if I get one more set of the checks, I won't contact B of A, I'll instead contact our attorney general.  I have the letter written and ready to submit online.

    I opened a card through Washington State Employees Credit Union.  No annual fee, a 1% rebate that is automatically applied every month to my balance (none of the games that Discover and Amex pull with their rebates), and if I were ever to carry a balance, fair practices regarding rates and fees.

    Credit unions are really the way to go these days.

    Does the Credit Union charge Merchant Fees? (none / 0) (#15)
    by EL seattle on Sun Feb 21, 2010 at 02:40:43 PM EST
    Until last year, I didn't realize that a lot of credit cards charged the merchant as much as 3% on each transaction.

    Info here

    I'll still use a credit card for some things, but this year I'm going to try to use cash for a lot of the things I buy locally.  I'd think that if the the 3% can stay with the local businesses, it's a good thing.


    Yes (none / 0) (#25)
    by TeresaInSnow2 on Sun Feb 21, 2010 at 11:41:29 PM EST
    Merchants pay merchant account fees for taking credit cards.  I know, because I was an online merchant for about 3 years (sold quilting fabrics).  It's a cost of doing business, like building rent, lights, taxes, etc.  Small businesses pay more in merchant fees than large businesses do.

    You get more business if you take credit cards.  And it makes sense to take credit cards for other reasons, such as the minimization of bounced checks and other such fraudulent charges that can cost the business more than the merchant account fees.  It's worth it to the merchant to pay the merchant account fees.

    And yes, when you use credit union Visas, the merchant account fees apply as well.


    Forgot to mention (none / 0) (#26)
    by TeresaInSnow2 on Sun Feb 21, 2010 at 11:52:16 PM EST
    It's also more efficient for a merchant to take credit cards.  You don't have to worry about daily deposits of checks, checks clearing the bank, etc.  The money from the transaction is simply deposited into your account within, I think in my case, it was 72 hours.

    And yes, merchants sometimes have to worry about things like chargebacks, wherein consumers dispute charges applied to their card.  In the 3 years of doing business I never had a single charge-back.

    Merchants incur transaction fees to take credit cards for a reason -- it's good in many ways for their business.  If it wasn't good for business, then businesses would take cards.

    I suggest before paying in cash that you ask your merchant whether they prefer cash or cards....they may very well prefer you use a card.  I know I did.


    Yup (none / 0) (#28)
    by jbindc on Mon Feb 22, 2010 at 08:35:50 AM EST
    Which is why "they" always suggest you use your card as a credit card rather than a debit card (because some places will charge YOU the 3% fee if you use it as a debit card).

    It's also why some businesses require a minimum purchase before they will let you charge it (even though, technically, they aren't allowed to do that.  As part of their agreement with VISA, MC, or whomever, and for having the machine, they must take ALL charges, regardless of the amount.  If they refuse to take a $5 charge, you always have the option of reporting them to the credit comnpanies, whereby they could lose their machine).


    Bill Discounting (none / 0) (#33)
    by gaf on Mon Feb 22, 2010 at 09:55:21 AM EST
    Until last year, I didn't realize that a lot of credit cards charged the merchant as much as 3% on each transaction.

    When you buy using a credit card, you are
    telling the merchant you will pay at the end of
    the month & you give him a promisory note for
    the same.
    The Bank essentially does what is known as bill
    discounting. The bank tells the merchant, it is
    ready to pay the merchant immediatelly at a 3% discount & the bank now owns your promisory note & will collect the money from you.


    I cancelled mine last year... (none / 0) (#17)
    by Realleft on Sun Feb 21, 2010 at 06:54:18 PM EST
    and took a hit on my credit score.  Didn't realize that was going to happen. Sigh.

    All bad so far (5.00 / 1) (#14)
    by Lora on Sun Feb 21, 2010 at 02:39:27 PM EST
    It's not all good news for the consumer.

    Umm, so what IS the good news?

    Just as Lonely Planet (5.00 / 1) (#18)
    by oculus on Sun Feb 21, 2010 at 06:56:09 PM EST
    stated, Japan is not a cashless society, especially re cards w/o microchip. Grocery store: cash. Taxi: cash. Most restaurants and purchases: cash. My ATM card only worked at main post office although there were ATMs everywhere.

    I worry about the people who don't understand any (none / 0) (#1)
    by Angel on Sun Feb 21, 2010 at 12:32:00 PM EST
    of this - those who aren't sophisticated enough to know how the credit card companies and bankers can really take advantage of them.  In my line of volunteer work I've seen many people ruined by credit cards...and it will get worse now that they have carte blanche to do whatever they want to do.  

    Does it matter if you understand (none / 0) (#4)
    by observed on Sun Feb 21, 2010 at 12:56:41 PM EST
    the rules? The rules you understand today might change tomorrow.

    Yes, it does. They need to be able to understand (none / 0) (#8)
    by Angel on Sun Feb 21, 2010 at 01:13:31 PM EST
    the current rules so they'll know when things change and how those changes will affect them.  

    I must not understand... (none / 0) (#30)
    by kdog on Mon Feb 22, 2010 at 08:54:30 AM EST
    because credit cards seem to me like little more than the scam of the century.  The high cost of instant gratification.

    Luckily it is still within the rules not to play their games...cash and carry still legal, for now.  So if you don't understand, or don't know how to play the game well enough not to get totally screwed...you shouldn't be playing.


    This (none / 0) (#2)
    by Big Tent Democrat on Sun Feb 21, 2010 at 12:32:47 PM EST
    "In the end, Congress made banks give up some abusive tactics while allowing them ample time and latitude to dream up new ones."

    is true for all new regulations. That is why regulations must be written to take this into account and in fact need to be written in broad terms so that regulators can respond to the new tricks of those being regulated.

    And of course this requires a robust regulatory regime and well funded and supported regulatory agencies.

    It is indeed the Achilles hell of any reform that is based on effective regulatory enforcement.

    It is the biggest problem with the health bills in Congress that rely on a regulatory regime to modify behavior.

    One of the important insights of the Law and Economics field is the concept that the best way to modify the behavior of market actors is to impose economic costs upon them. Regulatory reform is an inefficient manner of doing so.

    There is a reason why a carbon tax is preferred to cap and trade.

    Yet those same insights are ignored by folks when discussing health care reform. The most effective reform ever enacted regarding health care has been public insurance because of its direct effects on the actors in the health care industry.

    Expanding public insurance is the most effective method of regulation.

    Similarly, a public credit card program would also be more effective imo. But that type of policy will NEVER be considered.

    HEre's what strikes me as strange (none / 0) (#3)
    by andgarden on Sun Feb 21, 2010 at 12:38:45 PM EST
    As the paper dollar falls into disuse (and it slowly is already), our payment system will be essentially private. Dare I call for a "public" payment card system?

    The rudiments of it already exist (none / 0) (#7)
    by Democratic Cat on Sun Feb 21, 2010 at 01:06:02 PM EST
    Some state governments already issue a kind of debit card to distribute food stamps. It's not exactly the same thing, but is similar enough that the experience is valuable.

    The government already facillitates the settling of funds transfers between banks, so your idea really is not too far astray. When you write a check at the grocery store, that gets cleared over the Fed's system. Same thing when you make an electronic payment by accessing your checking account on-line.  The Fed's system is used to transfer the money. Seems like the Fed could issue cards that would work the same way rather than (or in addition to) issuing paper money.

    I know banks issue cards for that purpose (either debit cards or credit cards that people use only as a means of payment, not to obtain credit). But the idea that consumers will be charged for transacting (i.e., charged annual or other fees to make up for not carrying a balance) is pretty outrageous considering that these devices save processing costs compared to cash.  I understand annual fees on rewards cards--someone has to pay for those miles; but on a regular credit card? That's just insane.


    Didn't they also switch to cards for (none / 0) (#20)
    by cawaltz on Sun Feb 21, 2010 at 08:00:25 PM EST

    Could be (none / 0) (#21)
    by Democratic Cat on Sun Feb 21, 2010 at 08:24:26 PM EST
    That would make a lot of sense, although I hadn't heard about it.  EBT cards, as they are known, also are quite nice at reducing some of the stigma associated with being on assistance, whether unemployment or food stamps or whatever. No one knows what kind of card you are using to pay.

    there was a choice-- direct deposit or (none / 0) (#27)
    by jeffinalabama on Mon Feb 22, 2010 at 08:25:25 AM EST
    EBT cards, at least in Alabama.

    This nation has been a bunch of freaks (none / 0) (#5)
    by Militarytracy on Sun Feb 21, 2010 at 01:00:41 PM EST
    with the credit cards.  In this house they aren't a necessary evil. I can live without them, and I will if anyone tries to eff me over.

    I do live without them (5.00 / 3) (#6)
    by nycstray on Sun Feb 21, 2010 at 01:04:18 PM EST
    not hard at all.

    You must not travel much. (none / 0) (#29)
    by Chuck0 on Mon Feb 22, 2010 at 08:43:00 AM EST
    It's nearly impossible to travel without credit cards. You need them to make online reservations, rent cars, buy airline tickets, etc. Yeah, yeah, I now you can do all this with debit cards, but you can tie up huge portions of your bank account with holds on cash if you make reservations or check into a hotel with a debit card.

    How is it tying up huge portions of my account (5.00 / 1) (#35)
    by nycstray on Mon Feb 22, 2010 at 07:02:57 PM EST
    if that's the money I have budgeted? That's what living in a cash world is, budgeted. If a client/work wants me to travel, I make them pay. Even when I used credit cards. I'm moving cross country in a couple weeks. Cash/debit card which also includes 6 pets on sep flights, vet visits, carriers, movers, setting up living in another state (deposits etc). Totally doable if you plan right and you aren't slugged owing BofA when you're done. I will be paying 3 bills a month cable/internet, phone and rent. Done. Food and trans and we're good to go the rest of the month.

    agreed (none / 0) (#37)
    by CST on Tue Feb 23, 2010 at 10:37:41 AM EST
    I don't travel a ton, but I do travel.  And I have never owned a credit card - always used my debit card.  One time I did have to increase the limit on what I could buy in one day so that they would let me buy multiple plane tickets, but that was no biggie since the money was in the account anyway.

    As long as you budget, using a debit card when you travel is no biggie at all.  Don't spend the money if you can't spend it without going broke.  That's life without credit.


    The banks or businesses (none / 0) (#40)
    by Chuck0 on Wed Mar 03, 2010 at 12:02:00 PM EST
    put holds on sums of money in your account above and beyond the actual purchase. Rent a car sometime with a debit card. The rental may only be costing you $100, but they'll put a hold on $300 or more. Buy gas with a debit card. It's only $20 worth of gas, but guess what, the gas station put hold on $50. Sometimes it can take a couple of days for those holds to clear.

    Travel is a hassle... (none / 0) (#31)
    by kdog on Mon Feb 22, 2010 at 09:06:51 AM EST
    without the cc...but prepaids work well for me there.  Yeah, you got the load fees and sometimes they jack ya for a monthly if you leave a balance...but it beats going into bed with the credit card cretins full bore, imo.  

    God forbid we ever go cashless...can you imagine how we'd be nickel and dimed to death if there was no other option?  And lets not even go near account freezing or account errors.  

    Y'all can surrender your sovereignty if you want...but you'll have to pry cash from my cold dead hands:)  

    Maybe I don't want drugs legalized after all...thats about all that guarantees cash ain't going nowhere...the black market.  Banks make money off the black market too.


    Prepaids (none / 0) (#32)
    by jbindc on Mon Feb 22, 2010 at 09:49:51 AM EST
    Not necessarily good either.

    Rows of prepaid cards dangle from the racks of just about any Walmart or convenience store. Consumers are pitched their benefits online and through the mail.

    The cards offer a vital convenience for those who don't have credit or debit cards. They can be used to pay bills online, book airplane tickets, and generally provide a sense of security that cash may not.

    Users load them with cash and replenish as needed. The cards carry a Discover, Mastercard or Visa logo and can come with a tangle of fees. It costs as much as $29.95 just to buy one.

    The fees vary wildly too, so navigating them can be dizzying. There are monthly maintenance fees, ATM withdrawal fees, balance inquiry fees, bill pay fees and inactivity fees.

    "Pretty much every time you use it there's a fee," says Manny Villalobos, a 36-year-old sales rep in Pacoima, Calif.

    He wrecked his credit in the aftermath of a layoff, divorce and a string of panic attacks that landed him in the emergency room. Now he can't get a credit card from a major bank.

    Not all cards are so fee-heavy, and some may be a bargain for those with no other options. But even one of the more affordable cards costs $4.95 to buy, and charges a $5.95 monthly maintenance fee unless certain usage requirements are met.

    Despite the costs, an estimated $36.6 billion will be loaded onto prepaid cards this year, double the $18.3 billion last year, and more than four times the $8.7 billion total of 2008.

    "More people are starting to look to these as it becomes more challenging to get credit cards or even checking accounts," says Kirsten Trusko, president of the Network Branded Prepaid Card Association.

    Considering there's no risk for issuers, however, the costs can be steep.

    Take the Millennium Advantage card, which charges a $29.95 activation fee and $5.95 monthly maintenance. Any use of the card seems to come with a fee. It's $1.95 per ATM withdrawal, for example, and $1 per minute to call a customer representative.

    Yet for all the fees, issuers of prepaid cards aren't required to provide the same legal protections as for credit or debit cards, such as limited liability if they're stolen. The Federal Reserve is studying whether to change that, but hasn't set a deadline on a decision.

    True enough... (none / 0) (#34)
    by kdog on Mon Feb 22, 2010 at 10:17:09 AM EST
    but when cash ain't an option, whaddya gonna do.

    Still beats getting into bed with the hustlers full-time.  They can't take what you don't load on the card.


    I usually use my bank debt (none / 0) (#36)
    by nycstray on Mon Feb 22, 2010 at 07:13:25 PM EST
    small community bank. Almost fee free. I may have to use a prepaid for a few weeks during the move as a bridge between closing and opening accounts, so thanks for the info so I can check out fees :) I need to call the CU on the other end and see what I need for an account etc, so I may be able to avoid prepaids altogether {fingers crossed} I try my best not to support the insanity out there ;)

    Check out... (none / 0) (#39)
    by kdog on Tue Feb 23, 2010 at 10:53:36 AM EST
    Western Union's prepaid...they seemed like the best deal back when I was shopping for one.

    Likewise - I now have no credit cards. (5.00 / 1) (#10)
    by scribe on Sun Feb 21, 2010 at 01:20:00 PM EST
    And I hardly miss them at all.  I figure that, if I "need" to buy something and I don't have the cash available, I don't really "need" it.

    There are a few places where they come in handy - shopping on the internet being one of them - but after packing, loading, moving, unloading and unpacking all my stuff, I've realized that there's a heck of a lot of it for which I have only marginal use and can afford to get rid of.  And I surely don't need to buy more.  If I want to buy something from EBay, I'll spend the buck-plus for a postal money order.  Everyone takes those, even the "paypal only" guys.

    I suspect my having no credit cards will drive the banksters nuts, but I kind of like that.


    I do a ton of shopping online (5.00 / 1) (#11)
    by TeresaInSnow2 on Sun Feb 21, 2010 at 01:25:26 PM EST
    I would be lost without a credit card just simply because of the buyer protection.  Paypal offers buyer protection pretty much only if you shop through Ebay.

    I still don't buy more than I can afford and pay off the balance every month....and I save a ton of money buying online.


    Oh (5.00 / 1) (#12)
    by TeresaInSnow2 on Sun Feb 21, 2010 at 01:26:19 PM EST
    and Amex at least, doubles the warranty on items bought through the card.

    I have a card I use for my online and travel (5.00 / 1) (#13)
    by Angel on Sun Feb 21, 2010 at 01:38:34 PM EST
    purchases, I get miles rewards and I absolutely use those, they are a great money saver and more than make up for the annual fee I pay.  

    Travel is the one area (none / 0) (#19)
    by Militarytracy on Sun Feb 21, 2010 at 07:33:53 PM EST
    that could be challenging for me.  We pay for all of Josh's travel expenses and then try to get reimbursed :)

    It would be nice if you could get a discount or (5.00 / 1) (#22)
    by Angel on Sun Feb 21, 2010 at 08:27:01 PM EST
    even free travel sometimes.  But do check into it for the airline that you fly with the most, it might be worth it.  

    Do Your Research. (none / 0) (#23)
    by bselznick on Sun Feb 21, 2010 at 10:57:27 PM EST
    First, I moved all my personal and business banking to credit unions.  But along with that I had to research the cards offered by credit unions.  Do your research.  Some credit unions do not offer their own credit cards but use third parties.  

    In each case I specifically asked whether the third party was Bank Of America.  Some credit unions assured me that the third party was not associated with Bank of America. However, when I googled the credit card company, guess what, wholly owned subsidery of Bank of America.  So, if your CU only offers third party credit cards, make sure you research that third party.

    Good to know, thanks! (none / 0) (#24)
    by nycstray on Sun Feb 21, 2010 at 11:08:22 PM EST
    I'm switching to a CU when I move, so now I'm off to research them :)

    The problem... (none / 0) (#38)
    by MileHi Hawkeye on Tue Feb 23, 2010 at 10:48:33 AM EST
    ...with going without credit cards is the negative impact that it has on your credit rating.  That can adversely effect everything from your auto insurance rates to employment.  

    It's not right that people get penalized for paying with cash and/or living within their means, but it is the way the system works.