Many Provisions of Credit Card Act Go Into Effect Today

Today, many provisions of the Credit Card Accountability, Responsibility and Disclosure Act go into effect. The act will change the way banks regulate interest rates, send statements, and more. While good for consumers, banks are already looking for other ways to make up for projected lost revenue.

Specific pro-consumer changes include:

Notification Requirements: Card issuers must give consumers 45 days notice before making changes to their account terms or rates. Your credit card bill must be mailed at the same time every month and must be sent 21 days before the bill is due.

The Federal Reserve provides more details on notification requirements.

Grace Period on Interest Rate Increases: Credit card issuers cannot raise the rate on your account in the first year unless you are 60 days delinquint or have a variable rate card. They can also raise it if you signed up with a introductory rate offer.

Elimination of Common Charges: Many common charges will be eliminated. For example, if you spend over the limit with your card, the transaction will now be rejected as opposed to being accepted and then causing your whole account to receive a higher penalty rate. Companies can only impose interest charges on balances in the current billing cycle. In addition, annual fees cannot total more than 25% of the initial credit limit.

While these are all good, there are several unintended consequences of the act.

• Issuers have decided to raise the rates on cards in general, since they cannot raise them in the first 12 months. According to the LowCards.com Complete Credit Card Index ( http://www.lowcards.com/CreditCardIndex.aspx ), the advertised Annual Percentage Rates for credit cards averaged 13.46% last week. Six months ago, the average was 12.11%. One year ago, the average was 11.51%.
• Other fees are going up. Many cards are adding or increasing annual fees and other charges. Look for balance transfer fees and other charges not regulated by the act to go up.
• A shift from fixed rate cards to variable credit cards. Once again, because rate increases on fixed rate cards are locked, many issuers are switching to variable rate cards. Still, if banks can raise the rates on a fixed rate card, it's really not fixed rate.
• Increases in the minimum payment. The act requires that all payments go to the highest APR first. In response, issuers are raising the minimum payment up to 5% of the balance.
• A decrease in rewards. Many expect that banks will cut back on rewards and other related perks.

Still, I think that the new act is the right way to go. In the end, I bet most consumers would prefer to pay off high debt first, receive their bill regularly every month, and have a fixed rate account that is somewhat fixed rate, then get an extra air mile when buying the groceries.