Some of the less heralded features of the new Credit Card legislation are ones that will impact the vast majority of credit card customers. The law has taken aim at some of the revenue-generating billing practices that have been adopted by many credit card companies. These practices have been widely criticized for the way that credit card companies hit customers with unexpected fees and finance charges on their credit card statements.
Here's how the new law will make things more fair for credit card customers.
Two-cycle billing - Have you ever paid off your credit card balance in full, only to find that you still owe a substantial amount of interest on your next bill? You may have fallen prey to a practice called two-cycle billing, in which the credit card company calculates your interest based on your average balance over two months instead of just the current month. While two-cycle billing does not significantly impact those who keep a consistent balance on their cards, it can be particularly costly to customers who alternate between carrying a balance and paying in full. When the new law takes effect in February 2010, two-cycle billing will no longer be permitted.
Grace periods – Another practice that has become prevalent in recent years is the shortening of the amount of time you have to make a payment to avoid being assessed a late fee. The Credit CARD law now specifies that a statement must be sent by the credit card issuer at least 21 days in advance of the payment due date to give customers ample time to pay their bill.
Payment due dates – Many credit card companies do not currently adhere to a fixed-billing schedule. This means that customers' due dates can fluctuate from month-to-month, sometimes by as much as 5 days. This, along with the shortened grace periods described above, results in many customers unwittingly sending in late payments. The new law will require payments to be due on the same date every month, eliminating this source of surprise late fees.
Electronic Fund Transfer (EFT) Fees – Another revenue-generating tactic used by some credit card companies is to charge a fee for the "privilege" of paying a bill electronically through a bill payment service. The law now states that a fee may not be charged based on the manner in which a payment is made. So now all customers will be able to save on postage by taking advantage of EFT without having any additional fees assessed. The one exception to this rule is when a customer requests an expedited payment within one day of their due date; the issuer is still permitted to charge a fee in this case.
The intent of these changes was to set forth a fair set of rules for credit card billing, and the cumulative impact of these changes will be fewer fees and finance charges on credit card statements. While this is a major victory for consumers, the credit card companies will almost certainly make adjustments to their fee structures, interest rates, and reward programs to recoup the revenues that they would otherwise forego as a result of the legislation. Please check back with us at CreditGumbo.com as we continue to provide updates on the impact of the new law and any resulting changes that occur in the credit card market. To read more on this topic, you can find all of our related commentary on our Credit CARD Law blog page.
Labels: Credit Card, Credit Card Law
