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Soon the United States Congress will enact a new law affecting credit card use. Proponents refer to it as insurance for cardholders. Its purpose is to offer greater protection to consumers. However, like most insurance, it comes at a premium.
The new law will, eventually, change how credit card companies do business. Part of its goal is to benefit low-income cardholders.
Transparency is a key element of the new law. No longer will card issuers be able to just drop fee changes and interest rates in your lap. Regulations will require that issuers supply cardholders with a notice forty-five days in advance of any rate hike. The consumer may chose to cancel their card at that time and pay any balance at the current rate. The issuers must allow the cardholders a term of three billing cycles in which to respond to the rate increase.
Also, credit card companies will no longer be allowed to justify interest rate increases by "universal default." Universal default is a term by which credit card companies can justify rate increases based upon a cardholder's history with a third party. Let's say you fell behind in a utility payment, upon learning of your overdue utility bill your credit card company could claim "universal default" as a justification for raising your interest rates. Under new regulations, the card issuers cannot use third party circumstance t in order to increase your interest rate. Universal default will be dead.
Under the new law, the consumer must have a period of absolutely twenty-five days in which to pay off their balance in full. Current law requires only fourteen days.
Issuers will no longer be allowed to deceptively use the terms "prime rate" or "fixed rate" based upon their concept of what those terms mean.
There will be a cap on late fees. The credit card holder will have to "opt in" in order for particular fees to be charged.
Under current law, issuing companies may allocate a consumer's fees first toward the lowest interest rate, and next to the highest rate. New regulations will reverse the allocation so consumers will be paying off the highest part of their bill first.
Credit card issuers must inform the consumer how long it will take to pay off their debt by paying only the monthly minimum.
The fees charged by sub-prime issuing companies will not be allowed to exceed twenty-five percent of their total credit limits. This is a particularly helpful provision for low-income cardholders. Right now, these consumers are targeted with sign-on fees that eat most of their credit limit immediately.
Many of these new laws will benefit Americans with a history of late payment, minimum payment, and those who regularly carry balances forward. If you are not one of these people, but instead pay your balances off month to month and on time, you may be affected by the contrary measures the card issuers are likely to take.
It is possible that, because of the new law, card issuers will greatly reduce or limit credit card rewards programs. The grace period on purchases may be reduced or dropped and annual fees may be resurrected. So, the new law is a double-edged sword and how much it benefits you will depend upon who you are and how you manage your cards.