Credit Card Base

Today, the long-awaited and long-needed changes laid down by the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act go into effect.  When the bill was passed last May, it was the first meaningful credit card legislation that had ever been passed on the federal level.

The Credit CARD Act allows for a new level of oversight and regulation that will end some of the worst abuses committed by credit card companies.  We’ve updated all of our credit card resource pages to reflect the way this bill changes things for consumers.

While the Credit CARD Act is a huge step in the right direction, credit card companies are already hard at work finding new ways to get around the rules.  It ends some of the worst abuses, but does nothing to deal with others like usurious interest rates, over-the-limit fees, and other deceptive interest rate increases.

That’s why we’re fighting for the creation of a Consumer Financial Protection Agency (CFPA).  No matter how many regulations Congress passes, the banks will always be looking for loopholes they can exploit in order to make more money, and Congress will never be able to respond quickly enough to completely protect consumers.  We need an agency dedicated entirely to making sure banks aren’t selling bad practices and products; we need a CFPA.

(Pho

Full Article…

When the new credit card rules go into effect on February 22 (Credit Card Bill of Rights), perhaps one of the most exciting changes will be the way payments are allocated.

In the past, credit card issuers applied payments over the minimum payment to balances with the lowest APR because it worked in their favor.

Let’s look at an example:

Total credit card balance: $5,000
Purchase balance: $3,000 @ 18% APR
Balance transfer balance: $1,500 @ 0% APR
Cash advance balance: $500 @ 20% APR

In the scenario above, credit card issuers would apply any extra payments to the balance transfer balance set at 0% APR.

That would leave the balances subject to the highest APR and associated finance charges intact, costing you more money.

It wouldn’t be until that $1,500 balance transfer balance was paid off before the purchase balance and finally the cash advance balance would be paid down.

The practice meant big money for credit card issuers, and never-ending debt for struggling card holders.

Fortunately, lawmakers said enough was enough, and stamped out the negative payment hierarchy.

Going forward, the reverse will be true when you make more than the minimum payment.

So in the above example, any extra payment(s) will attack the cash advance balance first because it has the highest APR, and thus the most finance charges.

The last balance to be paid down will be the balance transfer set at 0% APR, which benefits card holders because it’s not accruing any interest (at least during the promotional period).

The rule change is good news for card holders looking to pay down debt; of course, it should have always been this way, but better late than never.

Your income may become a more important factor in determining whether you’ll be approved for a credit card, according to a post in the WSJ.

The paper said beginning in February, credit card companies will be required (Credit Card Bill of Rights) to consider an applicant’s income or assets/current debt before extending credit to ensure consumers have the ability to repay.

In preparing for the change, the credit bureaus have already gotten in on the income estimation business, with Experian reportedly nailing down income to the nearest thousand.

They came up with their estimates by matching credit reports with wages, interest, and investment income, along with total credit lines and related payments.

These income estimates will help credit card issuers approve or decline applicants, and may also be utilized to increase or decrease an existing credit line.

In the past, credit card issuers simply asked consumers to enter their gross annual income in a box on the application form, but soon you could be required to provide pay stubs, tax returns, or be asked to fill out a form 4506, which allows the IRS to release your tax filings to lenders (so no fudging the numbers).

What the changes really communicate is that credit scoring has proven to be unreliable, at least as a standalone determinant of capacity to repay debts.

Of course, the income estimates are just ballpark figures when it comes down it, which is why the credit bureaus’ contracts prohibit card issuers from turning down customers based solely on the information.

See: why credit card regulations are worthless.

The problem with imposing new rules on credit card issuers is their ability to quickly circumvent them and come up with new ways to make money.

It’s quite evident if you look at what First Premier Bank, a subprime credit card issuer, has done recently to skirt the impending rule changes set to take effect on February 21, 2010 (Credit Card Bill of Rights).

The First Premier credit card typically comes with a minimum of $256 in fees during the first year for a $250 credit line, but because the new laws limit fees at 25 percent of a credit card’s total limit, it will be lowered.

Going forward, the bank will charge a $75 annual fee for a $300 credit line, but to make up for that lost profit, they’ve raised the APR from 9.9 percent to 79.9 percent.

That’s not a typo, it’s the highest APR tied to any credit card currently on the market, according to an industry analyst.

For cardholders with a $300 balance on the credit card, it equates to about $20 in monthly finance charges; assuming you pay $20 per month, you’d be looking at $315 in fees annually for a $300 credit line. Not a bad h

Full Article…

By now, you’ve probably heard about credit card issuers paying customers to close their accounts in the wake of one of the worst credit collapses in history.

But the latest move by card issuers is quite the opposite; some are charging customers inactivity fees for dormant credit card accounts.

That’s right, if you fail to use your credit card for a certain period of time, you may be slapped with a fee (in the ballpark of $20) to keep it open.

Of course, it hardly seems worth paying it, given the fact that most credit card issuers do not charge inactivity fees.

However, some consumers have been led to believe that closing a credit card will do serious damage to their credit score, so they may hold off.

And though your credit score could fall as a result of a closed account, it probably won’t mean a whole lot if it’s a card you seldom use.

Additionally, there’s no reason you should pay a fee to keep your credit card open, regardless of the credit scoring impact.

If you feel you must keep it open, consider using the dormant card to pay a recurring monthly bill such as your gym membership or cell phone bill to avoid the inactivity fee.

Remember, the older the card account, the more value it has in terms of credit scoring, so don’t fret about closing a newer credit card.

And if you’ve got plenty of solid credit history, the “damage” to your score will likely be minimal if at all negative (Should I close my credit card account?).

Tip: Keep an eye out for changes to your credit card terms as issuers look to charge new fees to offset the impact of the recently passed Credit Card Bills of Rights.

Reporter: This article is an interview with Curtis Arnold, of CardRatings.com and author of How You Can Profit from Credit Cards.
Summer travel expenses are hitting many consumers hard and gasoline pump-pain is not helping. Curtis Arnold, of CardRatings.com and author of How You Can Profit from Credit Cards, zeroes in on gas and travel reward credit cards and offers a number of gas, hotel, and travel rebate tips.

Mike: BP Gasoline and JP Morgan Chase have joined forces to create a gasoline rebate program. What are your thoughts on this joint venture?

Curtis: It’s definitely one of the best gas rebate cards out there as it offers a 5% rebate on eligible purchases at all BP locations. A unique benefit of this card is that it also offers a 2% rebate on all eligible travel and dining. O

Full Article…

Have you ever waded through pages and pages of credit card contracts in an attempt to figure out what your interest rate will be?  Have you overdrawn your account by a few cents, only to get slammed with a disproportionate fee?  Would you be upset if you purchased holiday gifts only to find your credit limit slashed and your interest rates dramatically increased?

Tomorrow night, tune in to Frontline on your local PBS channel to see “The Card Game,” and learn more about the sneaky ways that credit card companies and banks are taking advantage of consumers and preventing reform.  According to Frontline, consumers use plastic for more than 100,000 purchases a minute; at that rate, we deserve to know that we’re going to be protected from tricks and traps, but this show will illustrate just how far we are from that goal.

This show is in collaboration with a New York Times series with the same title, which we’ve blogged about many times in recent months.  Tomorrow’s show provides another way to absorb the massive amount of information out there regarding the need for financial reform.  You can watch a preview of the show below.

If you’re angry once you’ve seen the show, head over to our Action Center and tell your elected officials what you think!