New Credit Card Laws Make it Easier to Save

An integral part of saving money is keeping debt to a minimum. Yet, for most of us, that goal is one of the hardest financial tests we can face. According to the Nilson Report, the average American consumer with credit cards carried more than $10,000 in credit card debt. Large credit balances like this make in nearly impossible for consumers to save money and build a future.  

Speaking of the future, 2010 is nearly here and will be another opportunity for households to attack the credit problem anew.

Some new regulatory changes coming to the credit card industry will make it easier for consumers to avoid getting into credit card trouble in the first place and make it easier for many to pay off existing debt. A look at the credit card industry since its beginnings shows us how vital this regulation is to the American consumer.

Credit cards first appeared in the US in the 1920s, most popular with gasoline companies to sell fuel to automobile owners. The first general use revolving credit cards did not appear until 1958 when Bank of America launched the first successful credit card program with BankAmericard. This eventually became the Visa system. Mastercard followed in the 1960s from a collection of other banks, backed primarily by Citibank. 

From the beginning, credit card companies tried irresponsible tactics to spread the use of revolving credit. Early credit cards were mass produced and simply mailed to individuals believed to be a good credit risk, with no application and without asking the consumer’s permission. Not only did this technique make credit more widely used, it also created havoc and mass fraud. The practice was banned in the 1970s, which is why companies can only send unsolicited credit applications today.

Early credit laws, called usury laws, let states set the maximum credit card interest rates allowed, often a maximum of 10 or 20 percent. But a Supreme Court ruling in 1978 allowed national banks to preempt usury laws in a borrower’s state of residence. When inflationary pressures caused banks to lose money even with rates of 20 percent, big banks even convinced local states like Dakota and Delaware to repeal usury laws, letting them charge how much they wanted to whomever they wanted. 

This gave birth to the bait-and-switch tactics that get many borrowers into trouble. Low introductory rates that give way to high rates, expensive late fees and overdraft fees set many consumers so far back, they can never recover. Another court ruling in 1996 allowed credit card companies to charge exorbitant late and over-limit fees without regulation, leading to even more danger for credit card consumers.

Late in 2008, the Federal Reserve began collecting public comment on the issue of credit card debt and eventually came up with new rules to take effect in 2010. These new measures are meant to protect consumers from excessive fees and unfair credit practices.

The Credit Card Accountability Responsibility and Disclosure Act of 2009 makes the following changes to benefit credit card consumers:
 

• Banks can no longer increase rates without goo reason, protecting prior balances for those who pay on time.
• Retroactive rate increases due to late payment is severely restricted.
• Contract terms cannot change in the first year and must be clearly disclosed. Introductory rates are allowed as long as terms are made clear and last at least six months.
• Banks must give consumers at least 21 days notice between the date of the bill and the payment due date. Deadlines cannot be placed on the weekend or placed mid-day.
• Banks must now apply excess payments to the highest-interest balance. Credit card companies can no longer use the balance from a previous month to calculate interest on the current month (“double-cycle” billing).
• Credit card companies can no longer process charges that will cause an over-limit fee without the consumer’s permission.
• Imposes substantial restrictions on subprime, low-limit cards

The above highlights the major changes the law brings about. Other changes are meant to protect the most at-risk consumers, college students. The law also increases penalties for card issuers that violate the law.

These changes mean it will be easier to pay down your credit card debt in 2010 and make it easier for you to avoid getting into credit card debt if you have been lucky enough to avoid it.
 

Jessica Bosari is an Internet copywriter and blogger for various publications and her own blog. You can read more of Jessica's work here.