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Understanding The Sweeping New Credit Card Rules

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Understanding The Sweeping New Credit Card Rules

Your Money

Understanding The Sweeping New Credit Card Rules

Understanding The Sweeping New Credit Card Rules

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New rules for credit card companies take effect in February. Personal finance columnist Michelle Singletary explains the new rules and what they mean — and don't mean — for consumers. Also, giving up extras for 21 days: can it help you spend smarter?

REBECCA ROBERTS, host:

New rules take effect this month that could make living with credit cards a bit less frustrating. Maybe you've been hit with a late fee because your payment due date was on a weekend, or then your interest rate jumped up on a different card even when you had paid on time. Well, no more, according to the law known as the Credit Card Act.

Syndicated personal finance columnist Michelle Singletary joined us a few weeks ago to talk about giving up plastic and a lot of other spending for a 21-day financial fast. She's back today in Studio 3A to tell us more about the new credit card rules and to check in with you to hear how your spending freeze is going.

If you have questions about the new credit card rules, or if you gave the financial fast a try, give us a call. The number here is 800-989-8255. Our email address is talk@npr.org. And you can join the conversation at our Web site. Go to npr.org and click on TALK OF THE NATION.

Michelle Singletary, welcome back to TALK OF THE NATION.

Ms. MICHELLE SINGLETARY (Business Writer, Washington Post): Oh, it's my pleasure.

ROBERTS: So let's talk about the new credit card rules first. What are sort of the major changes we'll see coming up February 22?

Ms. SINGLETARY: Well, I think people will see that they have - they are going to be giving more notice. I think one of the biggest things is that you won't be able - the credit card companies won't be able to increase your interest rates on existing balances. Say, if you're late on another card, they have this thing where they could boost your rate on all that you had charged, not just new purchases. So they can't do that anymore.

There's no monkeying around with your due date. I mean, they say, oh, it has to be there at 1 PM or some craziness - they can't do that anymore. One of the other great things is that over-the-limit fees. They have to get your permission now to allow you to go over your available balance. And this is really key because you might be getting phone calls or letters, if you haven't already, to say, do you want this? And I would encourage people to say no. So...

ROBERTS: So this is if you hit the balance on your credit limit

Ms. SINGLETARY: Right.

ROBERTS: ...your credit card will just be denied...

Ms. SINGLETARY: That's correct.

ROBERTS: ...rather than the charge going through and you're getting a big fee for it.

Ms. SINGLETARY: That's exactly right. So say, you have $1,000 limit on your card and you spent $1,001, you know, typically they would go and then you get hit with a $35 fee for that $1 that went over your limit. Now they can't do that unless you agreed to it. And be very careful because I heard from a reader, from my column, The Post column, who said he got a call from his credit card company. And the person was like, so you want to make sure you want to do this. You want to have this all. And he said, No, I never go over my balance.

And they were trying to talk to him and they didn't really explained to him about the law and why they were asking him. And so he wrote to me about that. And I said, that's what was going on. So you might be getting these letters and calls and not understanding that that's what they're asking. They're asking for your permission. And if you're not very disciplined and you've been hit with these fees before, you should just decline because really, you shouldn't be spending more than what's on your available balance for a number of reasons.

A, for that over-the-limit fee, but also because that impacts your credit score when you are maxed out on your cards.

ROBERTS: I've been noticing - and I'm sure a lot of other consumers have too I've been getting a lot of mail from my credit card companies lately. Is that trying to change policies before they log us into effect?

Ms. SINGLETARY: Some of it is changing policies like lots of people have heard from their companies that they're boosting their rates and ahead of the law. I've been I tell you, I almost get an email a day from someone ticked off about that. Part of it is letting you know what's going to be happening. So listen, folks, normally you get these things and you toss them in the trash, you pain no attention to them. You must pay attention to them.

Read them, understand them. If you have questions, call your credit card company. It's really important that you look at these disclosure statements.

ROBERTS: The transfer balance checks that we all seem to get, I get a couple of them a week. Is that a way for credit card companies to make money on you? How does that work and is that falling under this law?

Ms. SINGLETARY: Well, you know, the thing about that is that you get these things then they say, you know, why don't you transfer? And that's okay if you've got a lot of debt and you're trying to lower your interest rates. But you're not going to be getting as many of those before because they are restricted in terms of when they can increase your rates. For example some of these new offers, they can't increase your rate, cannot, for the first 12 months, unless - you know there's always a catch - unless you're late for 60 days or more or it's a variable rate.

So that's what I mean by looking at those statements. But generally speaking, you want to be very careful about those transfer balance - look at the fees and make sure it's worth it.

And if you have a lot of debt and you're fortunate enough to get that because not a lot of people are getting those. You can take a look at it, and it might help you dig out of debt.

ROBERTS: Now, this law does have some very specific provisions, you know, due date has to be 5 p.m. that day, things like that. But, of course, often that just means lots of efforts to get around those laws and find other ways to charge fees. What are some things we might see new from our credit card company?

Ms. SINGLETARY: You know, that's sort of interesting. The law is pretty good about cutting out all that monkeying around they used to do about when things are due. So, for example, if your payment is received by 5 p.m., they have to post for that day. If your payment comes - if your due date somehow falls on a weekend, they have to post it the next business day. So there is not as much room for them to get around there.

I think the catch - what people find is that they're going to be really hard on that late-payment rule. If you've been a good credit card user, typically, if you, say, forget one time or something like that, they may forgive you because you've been a good customer, probably not now. You may not get those good graces that you got before because the law is so specific that they can only raise your rate on new purchases if you're 60 days late. So, you know, they're going to want to use that because the law has cut out a lot of ways for them to charge you fees.

ROBERTS: We have an email from Jeff(ph) in Rock Island, Illinois, who says, I am one of many who had Chase increase my interest rate to 25 percent for no reason, and I had to open a card elsewhere to transfer as much of the balance as I could. Is there anything I can do about that?

Ms. SINGLETARY: Well, you know, you could decline the fee increase. I mean, as of August, they had to let you know that they were going to do this, and then you had a choice. You can say, I do not want this rate increase. Keep it as-is but you have to close the account, or you can accept it and then pay it. So you have some choices. I have told a lot of people, if you don't have a lot of outstanding debt - and it sounds like this person did - then go ahead and decline it, and keep your old rate and just pay the card off, especially, if you've got another card - most - many people have two and three cards, so it's okay.

And it's a myth that if you close it that your credit score will go up and that - unless you have a lot of debt outstanding. If you don't have any debt outstanding, you can go ahead and close it. It's not going to affect your credit score.

ROBERTS: Are we likely to see more things like annual fees or inactivity fees or floors where the interest rate can't go below it, things that are not prohibited by this law?

Ms. SINGLETARY: Oh, absolutely, definitely. I think there definitely will be a return to annual fees because there, we're cutting off a lot of their income streams. You're going to see lots of - you have to spend a certain amount of money before you get certain reward points. You know, the companies are going to find ways to try to get back some of this money. And you're going to see a tightening of credit. You know, people - and people have already seen it. Their credit lines have been cut. And so it's going to mean that you're going to have to use your credit card a little bit differently.

ROBERTS: And do the new rules apply to debit cards, check cards or just credit cards?

Ms. SINGLETARY: Credit cards.

ROBERTS: Let's take a call to - from Jerry(ph) in Columbus, Ohio. Jerry, welcome to TALK OF THE NATION.

JERRY (Caller): Thank you very much. And I read Ms. Singletary's columns and she's right on. I spent over 40 years in the credit business, and believe me, what these banks are doing is ridiculous and it's legalized larceny. They can program - and we went into a mechanization in the '60s and they can program their accounts in so that they don't go over limit but they don't want to do it because then they don't get their $39 over-limit fee.

Ms. SINGLETARY: That's right.

JERRY: This is - there should be even more stringent laws on it. But I appreciate your having this program on because it is very helpful. And they - I think you ought to also do a little bit on how these banks are destroying the economy. There was an article on that many, many years ago by - in Harper's magazine by Martin Mayer who wrote the book "The Bankers." But I appreciate your taking my call and I totally concur with all these limitations on the banks.

ROBERTS: Thank you, Jerry. Let's talk about the financial fast, which you recommended to us a couple of weeks ago. For the people who didn't hear that program, give us a quick recap of what that involved.

Ms. SINGLETARY: So I just came out with a book called "The Power to Prosper: 21 Days to Financial Freedom." And so, for 21 days, in the book, every day I take you through a different financial issue. And so, for 21 days, you can't spend on anything that is not a necessity: can't eat out, can't get your hair done, and you can't use credit card and you can't use your debit card. So it's cash only for three weeks. It's an awesome fast. Doing each day of the book, I take you to different things like how to be more generous, how to teach your kids about money. I talk about couples and money. And so, the whole idea is to stop your consumption for just 21 days to sort of get you to get a handle on how much you're spending.

People don't realize how often we consume and use our credit without thinking about it. And this fast is intended to just really help you get your money in order. And I use Biblical principles as how to encourage people to just think about how they're using their money.

ROBERTS: And do you feel like the - we talked about this last time, but just to reinforce - do you feel like the lessons are salient or useful without the Biblical parts of it?

Ms. SINGLETARY: Sure you can. I mean, if you don't believe in that, you can still follow the fast. This is what I believe in and I, you know, was inspired to write the book because of the ministry that I developed at my church and so, that's why I took that path. But people who are not religious had been buying the book and following the fast. I mean, you know, I'm not going to force you to pray

(Soundbite of laughter)

Ms. SINGLETARY: if that's not what you do. But I think people will find it useful. The principles are the same no matter what you believe.

ROBERTS: Well, we've got some emails and calls from some folks who tried the fast. This is Kerry(ph) in Wichita, Kansas who says, I took the challenge. I withdrew $150 cash to use for 21 days. I was amazed at how long lasted by not going to fast food joints, buying extra items at the grocery store and just staying in. It was great seeing my bank balance stay the same all month instead of dwindling. It's my new way of living.

Ms. SINGLETARY: Oh, wonderful, wonderful. That's so good. And I like that she said she took the cash out. And the thing about it - what happens is when you use the cash, you're less likely to spend that money because it's a visual clue, like, you know, you've got 150, now it's down for 125 and now it's down to 25, and you stop. When you're using plastic, even a debit card, you're just swiping and swiping and you're not thinking about it. And many people find themselves upside down every month. They're spending more than they're bringing in.

ROBERTS: My guest is Michelle Singletary. We are talking about the new credit card rules and the 21-day financial fast that she recommended to our listeners a couple of weeks ago. If you took part in that give us a call: 800-989-8255. Or send us email: talk@npr.org. You're listening TALK OF THE NATION from NPR News.

Let's hear from Michael (ph) in Rehoboth Beach. Michael, welcome to TALK OF THE NATION.

MICHAEL (Caller): Well, thank you very much.

ROBERTS: Did you try to fast, Michael?

MICHAEL: Oh, I was doing great. And Michelle, it's a pleasure to listen to you.

Ms. SINGLETARY: Oh, thank you.

MICHAEL: My wife and I, we stopped using credit cards, oh, probably about a year ago

Ms. SINGLETARY: Mm-hmm.

MICHAEL: and started building up our emergency savings, everything was going great. We have dogs, golden retrievers. And one of our dogs required emergency surgery...

Ms. SINGLETARY: Mm-hmm.

MICHAEL: And that dog was not in the emergency veterinary hospital for 24 hours, and our bill was over $2,500.

Ms. SINGLETARY: Oh, wow.

MICHAEL: So out came to debit cards - didn't use the credit cards - but had to use the debit card. It was just some thing that we had to do. They would not even look at the dog until we had $900.

Ms. SINGLETARY: Now you didn't have the money in savings?

MICHAEL: Pardon me?

Ms. SINGLETARY: Did you you didn't have money in savings?

MICHAEL: We had some, but we didn't have $2,500.

Ms. SINGLETARY: Oh, yeah. Yeah. You know, it's so interesting you talk about that. And that's why it's important when I talk about the fast is, doing it so that you can build at the savings so something like happens, you have the cash, and you don't have to rely on credit. And let me tell you, I had a dog that I adopted from a shelter with a heart problem. I adopted a dog with a heart problem, because I just felt like, you know, if he's going to have a couple of months to live, let me give him a place to live.

And so I felt so attached, I got his heart fixed. And I talked to the veterinarian, and I'm not sure if you were able to do this, but in my case, he was so he just loved the fact that I adopted this dog with this heart problem. He put me on a payment plan. And so I paid for my dog's heart surgery on a payment plan. So I understand where you're coming from and it was a decision that you had to make.

But I encourage you going forward - you know that these kinds of things can come - is that to save as much as you can so you don't have to rely on that plastic the next time something like this happens.

ROBERTS: Michael, thank you for your call.

Let's hear from Laurie (ph) in St. Louis. Laurie, welcome to TALK OF THE NATION.

LAURIE (Caller): Hi, thanks a lot for taking my call, and thank you for inspiring me to do the 21-day fast. I just finished it yesterday.

Ms. SINGLETARY: Oh, yay.

LAURIE: Yeah. It was amazing. It was really, really fantastic, because I felt like I was really walking my talk and employing philosophical principals about money and consumption that I've always felt that I really, for the last few years, got out of control. So I disciplined myself to do it and it was remarkably easy. I paid cash for everything. And really, I spent very little money. I just bought, as you suggested, put money aside for medical, or food, and that was it. And I couldn't believe how empowered I felt and how I guess about a week into it I started noticing I had this sense of calm.

Ms. SINGLETARY: Right.

LAURIE: And I attribute it to not spending money.

Ms. SINGLETARY: Mm-hmm.

LAURIE: And not coming up with errands to run, to go and purchase something that I didn't really need in that moment, or knowing that I was - had to stay at home and complete projects here at home.

Ms. SINGLETARY: Right.

LAURIE: And that constant thing over my head that I needed to go shopping, or needed to spend a little extra money at the grocery store, or go back to buy some more food for whatever, for my family. I didn't need to do it. And I felt extremely relaxed.

Ms. SINGLETARY: Wow.

LAURIE: And for me...

Ms. SINGLETARY: I can hear it in your voice.

LAURIE: ...that was very enlightening...

Ms. SINGLETARY: Yeah.

LAURIE: because I didn't realize that I had this underlying anxiety, this need to consume.

Ms. SINGLETARY: Right. You know, that...

LAURIE: I don't think of myself as materialistic, but I really it was really kind of creates chaos...

Ms. SINGLETARY: Right.

LAURIE: ...when you just think you need things that you don't.

Ms. SINGLETARY: That's and that's really what this fast is about, you know? And I don't know if you did it with the book, but that's sort of one of the things we talk about in the book. One of the chapters is just stopping that and giving you a sense of financial freedom. You can hear it in her voice. Just the peace, and she was so excited. And imagine if more people did that.

And you know and when I - I've been getting emails from and some from some NPR listeners, and one person said, you know, I on average, people were saving $200 to $300 a month, just cutting out the extra grocery trips and the, you know, things like that. And it's just for a period of time. I'm not telling you to do it for the rest of your life, but that's really what the goal is, to give you the financial peace, and so that you don't have to end up relying on that plastic. And all those credit card rules that we were talking about, you won't have to worry about it, because you're not relying on that plastic.

ROBERTS: And do you find that when people do it for 21 days, they keep some of those habits when the 21 days are over?

Ms. SINGLETARY: I do. And, of course, some people don't, you know? People try it (unintelligible) do it, you know? But I find that lots of people did like the last caller, they're so energized that they'd take it the next step. So they take that money that they saved, and now they're going to put it in their emergency fund. Now they're going to start their college fund that they've always been promising to start for their kids because they now feel that freedom. They go for it, and they actually create prosperity for themselves and their family.

ROBERTS: Michelle Singletary, she writes the nationally syndicated personal finance column, "The Color of Money," joining me today in Studio 3A. Thanks so much for coming back.

Ms. SINGLETARY: You're so welcome.

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