irst glance, the sweeping credit card legislation that passed the Senate on Tuesday looks like a huge victory for consumers. The bill, after all, contains relief from penalty fees and certain interest rate spikes.
But for people who pay off their bills each month, and milk the card rewards programmes for everything theyre worth, there is some cause for concern.
For months now, the card companies have been threatening to cut rewards programmes sharply to make up for revenue lost because of the new restrictions. My guess, however, is that this talk is just so much saber-rattling.
Card companies want to make money, and big spenders help them do it, even if those cardholders do not go into debt.
First, lets lay out the things we know will change because of the new legislation. The bill is chock-full of new rules, which will take effect at various points in the year after President Obama signs the final legislation.
There are new restrictions on when card companies can increase the interest rate on balances youve already run up. The bill says that banks generally must wait until youre 60 days late in making the minimum payment before applying a penalty interest rate to your existing debt.
While an earlier bill in the House of Representatives suggested less strict rules, House members have agreed to adopt the Senate version and intend to vote on it on Wednesday. On Tuesday, senators voted 90-5 in favour of the measure. Card companies will have to give 45 days notice before raising their interest rates. Theres also a notice requirement for any significant change to a cards terms, which may keep companies from surprising customers who have been saving their loyalty points for years with huge alterations in rewards programmes. Banks must send out your bill no later than 21 days before the due date. They cannot send it with, say, 14 days to go, hoping that you wont get a check to the bank in time to avoid a late fee.
If the card company gets your payment by 5 p.m. on the due date, its on time, according to the new rules. No more of this early morning deadline nonsense, which led to late fees for payments that arrived with the afternoon mail.
Also, no more late fees if the due date is a Sunday or holiday and your payment doesnt arrive until a day later.
Lets say youre paying different interest rates on the debt on a single card - one for a cash advance, another for a balance transfer and a third for new purchases. Now, when you make a payment over the minimum balance, banks will have to apply it to the highest-interest debt first. I bet you can guess how some banks used to handle this sort of situation.
Banks will need your permission before allowing you the privilege of spending more than your credit limit and paying a fat $39 fee for that privilege. The card companies should be ashamed that they needed a law to make this opt in requirement a reality. If youre a student, it will become harder to get a credit card. No one under 21 can have a card unless a parent, legal guardian or spouse is the primary cardholder. Students with their own income can submit proof and ask for an exception to the co-signer requirement.
The senators, in an apparent endorsement of helicopter parenting, also require written permission from the parent, guardian or spousal co-signer for any increase in a cards credit line. You can read all the gory details through links to the Senate bill.
Hate gift cards? Me, too. There will be some helpful new rules regarding those absurd dormancy fees, which punish people who let the cards sit around before using them.
Under the Senates rule, retailers and others that issue Visa, MasterCard, American Express or Discover gift cards or certificates will have to print explicit dormancy fee information on the card. Sellers of the cards will also have to inform the buyer of the fee. Thats a smart twist, since the gift giver can then become aware of the noxious nature of the fee - and elect to give cash or some other gift.
The bill also bans expiration dates on gift cards and certificates any sooner than five years after the cards original issue date. And the retailer or card issuer will have to print the terms of any expiration date in capital letters in at least 10-point type. Call it the fine print rule.
It will be fascinating to see which retailer or card issuer has the nerve, after having free use of your money for five years, to tell you it will lose the money altogether if you dont use up their gift card. I dare them to try.
So will credit card companies kill reward programmes or drastically scale most of them back? Of course not.
If you strip away the reward component of a credit card, its essentially a commodity, said Rick Ferguson, editorial director at the loyalty marketing company LoyaltyOne. The reward is what gives it its personality. It works from a branding perspective as well as a mechanism to influence customer behaviour and consolidate spending on a particular card.
That last part is crucial. People who spend a ton generate fees galore from merchants and that money helps the card company stay in business. So you may soon see card companies giving away more goodies or lowering annual fees for people who hit certain spending thresholds each year. American Express already does this on a number of cards.
Also, keep in mind that you may have more control over what the card companies do to you than you may think.
The New York Times