Yesterday marked the implementation of the Credit Card Accountability, Responsibility, and Disclosure Act of 2009, which was designed to protect consumers in several ways from taking on too much debt and being charged exorbitant fees.
We’ve seen several changes happen over the past few months, including higher interest rates on credit cards and fewer 0% interest cards. Also, there have been reports that more cards will come with annual fees.
So what does all of this mean to you? What effect will this have on regular consumers? Let’s investigate several types of consumers and see which changes will affect them most:
In a Sallie Mae study, research revealed that the average undergraduate student carried $3,173 in credit card debt in 2008, with projects that the amount of credit card debt would increase in 2009.
As a response, the Credit Card Act makes it harder for students who are likely to be irresponsible with their credit line to obtain credit cards. The new law requires a co-signer for anyone under the age of 21, unless they can prove they have a job and can make payments without a co-signer.
Also, offering free gifts as a way of attracting college students to sign up for credit cards is banned within 1,000 feet of campus. Hilarious, but it actually works as I’ve seen lines form next to tables at football games where the reward is a free extremely expensive t-shirt.
Digging Out of Debt
For those who have debt and committed to getting out, there is lots of good news. In the old system, credit card issuers applied payments to the debt with the lowest interest rate, thereby increasing the total amount of interest paid over the longest possible period of time.
In the new system, the principle payment is applied to the debt with the highest interest rate. For those with balances of different interest rates, it means it will be possible to pay off the balance a little faster and with fewer interest charges.
More good news for those getting back on track is that credit card companies can only apply interest rate changes on new balances. The old system allowed them to hike up interest rates on your old balances as well, but now as long as you are not 60 days delinquent on your account, this can’t be done. So as long as you stay current, your old balances won’t be charged more.
Head In The Clouds
For those who are near their credit limits and who keep charging expenses on their card, there is good news and bad news. The bad news is that you have been paying $39 or more for each transaction that is over the limit. The good news is that credit card companies will have to get your permission to continue doing this.
If you think that $40 sweater is worth $79 (plus interest on the $39), then go ahead and opt in. But if you don’t, being cut off and having your card denied could be very embarrassing. For this group, I don’t see this as a solution, just a way of limiting just how much trouble someone can get into.