Plagued by credit-card debt? New laws could help lighten long-term load

by Texas Sen. Royce West

Many of us can remember the theory of ‘trickle-down economics.’ It proposed that if the haves acquired enough, their largess would eventually reach the have-nots. But 20 years later, the have-nots still have not. The trickle spigot was somehow capped. 

But now it seems that the current economic crisis – triggered by the collapse of the housing industry three years ago that crashed Wall Street, that paralyzed the auto industry, that caused Americans to lose jobs at a rate of 700,000 per month – found a way to tap the trickle spigot so that banks (the proponents of this catastrophe) could in part recoup their losses from the plastic-toting public.  

Americans were furious when notice came from card issuers that the terms of revolving credit as we knew it, were about to change. Many consumers were hit with a triple shot from credit card companies. Attractive fixed rates were supplanted by variable rates. Lower interest rates would be raised in some cases from single digits, to something closer to 20 percent or more. This whammy of a trifecta was completed when card issuers converted existing balances to new higher interest rates. Consumers were left with the option of accepting the new terms or closing the account under old rates (opting-out):  like it or not.

Outraged citizens complained and Congress and last May signed into law sweeping changes to laws governing banks and other credit card issuers. The new law goes into effect February 22, giving banks the time they begged for implementation. Their interim response included imposing the same rate hikes on their ‘good customers’ that had been used, along with exorbitant penalties and fees on the risky, to rake in profits. 

Effective soon, 45 days notice must be given in advance of any increases in credit card rates or fees. The law requires that promotional rates offered to both new and existing accounts last a minimum six months and interest rates or fees on a new account cannot be raised more than once within a single year, unless the cardholder’s payment is 60 days late.

Issuers must now set due dates on the same day each month and bills are due the next business day if due dates fall on a weekend or holiday.

Monthly statements must now be issued to customers at least 21 days prior to payment due dates. Current law requires just 14 days.

The new laws also protect cardholders from over-the-limit charges. For a transaction to be completed that would cause the cardholder to exceed their limit, the customer must be alerted and choose (‘opt-in’) to continue the transaction.

Banks and other issuers will no longer be able to charge for telephone or electronic transfer payments unless expedited service is requested. And payments made in the branch office of an issuer must be credited the same day. 

Maybe you’ve taken advantage of those low- or zero-interest balance transfer offers. You may not have known that issuers were allowed to apply your payments to the low-or no-interest debt, while the interest accumulated on higher rate balances. This practice will end. The new law says all payments above the minimum will now apply to the balance bearing the highest interest.

How many parents were not aware that the student you sent away to college was in possession of a credit card until the bill arrived at your door? This too will end. Co-signors will be required unless those under 21 can provide sufficient proof of income.

Those who now think their account agreements look more like a loan shark deal will find solace in the new provision that requires all changes in credit card terms imposed after Jan. 1. 2009 to be reviewed by issuers every six months with rate reductions to be considered.

Purchasers and recipients of gift cards railed against industry practices that penalized holders for not immediately using the cards. New rules say no fees can be charged for 12 months and cards cannot expire until five years after purchase.  

And lastly, all changes under this Act will be reviewed for their effectiveness and impact every two years by the FTC and Federal Reserve.