A Look at the New Credit Card Rules That Were Effective August 22, 2010

As part of the CARD Act, there were several new rules that went into effect on Sunday. They are:

Reasonable penalty fees. The new fee can’t be more than $25 unless you have been late within the last six payments, in which case it can be up to $35. I fail to see how this is going to motivate people not to be late.

No more inactivity fees.

No more multiple fees for the same transaction.

Rate increases must be accompanied with an explanation.

Rate increases must be evaluated every six months to see if a lower rate is appropriate.

I saw a commercial today for a company that made the claim that “debt settlement is YOUR RIGHT,” and that people can “drastically reduce” their balances. This kind of stuff gets on my last nerve. I think that people should have to dump most of their material possessions first and THEN the balance can be reduced to whatever acceptable level (this still bugs me but at least people wouldn’t be getting off too easily). Of course the glitch in my idea is that not all credit card purchases are for material goods.

Anyway, overall, I think these changes are okay. I never liked inactivity fees. Late fees are totally okay by me. If you don’t want a late fee then pay your bills on time. It’s not that hard to figure out.

I did see on Instapundit this morning that one of the consequences of the CARD Act is higher interest rates on credit cards. Let’s face it: banks are going to make their money one way or another.

8 thoughts on “A Look at the New Credit Card Rules That Were Effective August 22, 2010”

  1. “Free” checking adjustments will be the 1st line of attack to replace the banks’ lost credit card revenues. From what I’ve read recently the authors’ advice is to stick w/credit unions and on-line banks. Otherwise your minimum balance required might be over $3,000! I don’t see most Americans being able to handle that.

  2. I am surprised that you like these changes, because I thought you were a strong advocate of the free market system.

    Of course half these fees were a rip-off, but they were also a matter of choice. I have held credit cards for many years, and have only once paid a fee – many years ago when I forgot to mail a payment. The rest of the time, I have been rewarded with cashback, rebates and airline miles.

    Those who can’t live without an unsecured line of credit, or who can’t balance their checkbooks or who forget to pay their bills should expect to pay for the priviledge.

    If consumers were so strongly against these fees, they could have either avoided them or made the minimal effort required to find the cards that don’t charge them.

    As for an inactivity fee – isn’t it just a higher annual fee for those who don’t generate any other revenues but still want access to an unsecured line of credit?

    I suspect that one (unintended?) consequence of the new rules is that the less-creditworthy and/or smaller spenders will find it harder to get cards, or have higher interest rates or annual fees.

    I’m all for clear disclosure, which the credit card companies were deliberately terrible at, but I am against such blatant interference in the market.

    I get very nervous when I see this level of government intrusion in the free market. Is a credit card a “right”, like healthcare?

    If we accept this level of government intrusion into consumer finance, then we should also trust them with our health insurance.

    Personally, I don’t!

  3. @Stacey: Free checking never was free. It was paid for by those pesky overdraft fees. The banks stopped charging for checking accounts, but those accounts had hefty charges for overdrafts.

    Once again – it was easy to avoid thoise charges if you knew how to play the game. I was quite happy for the people who can’t do simple math to subsidize my free checking.

  4. Mark,

    You make some excellent points. I don’t like government intrusion at all and I do think that these changes were unnecessary. What I meant by by “overall…” statement was that the changes could have been worse. I didn’t mean to give the impression that I like them.

    On a philosophical note, what regulations do you think are necessary in a free market?

  5. Having the opportunity to be philosophical, I would say that I support regulations that bring external costs internal – not 100% sure that is the right way to say it. For example, if pollution costs everybody, there should be a way to make the polluter pay for it. Not quite sure how to value human life to assign the costs, but it is done every day.

    I am also OK with regulation that ensures disclosure – although I’m not sure how far “caveat emptor” should go.

    Disclosure rapidly turns into biolerplate. (Look at the spiel about forward-looking statements at the beginning of every earnings call.)

    On a side-note – I wonder if the new disclosures on credit card statements (amount paid if you only pay the minimum, etc.) have been a factor in the reduction of consumer credit in the last few months.

    That would be a good subject for a post – What (or how much) regulation is acceptable?

  6. Squeeze the balloon in one place, it pops out in another place. I think the country as whole would be a lot better off using credit cards less frequently and paying for more things with cash.

  7. What I hate most about credit-card ‘contracts’, is that they all have the clause that the credit-card issuer can change the contract at any time.

    What other types of ‘contracts’ in our legal system allows one party to change the contract at any time, without the consent of the other party?

    I am OK with a CC company doing a rate increase, for example, but it should only be future purchases subject to the new/higher rate. Retroactively applying the higher rate to past purchases should be illegal: I don’t know if the new CC-Act addresses this or not.

  8. I’m sure credit card companies won’t have a problem finding other places where to get the revenue from. I actually hope that spending on credit cards will be tougher in the future. Americans need to realize that spending money which they don’t have is not helping anyone… even themselves. It only works until you mess up your credit. After that you’ll need several years of credit repair to get back on track.

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