New Credit Card Rules Offer Consumers Both Relief And New Hurdles
LYNN NEARY, host:
I'm Lynn Neary. This is TELL ME MORE from NPR News. Michel Martin is away.
Coming up, we speak with a 13-year-old sophomore at Morehouse College and his mom, that's in a few minutes.
But first, your next credit card statement may surprise you. It will tell you how much you owe and how long it will take you to pay off your debt. This is just one of the new credit card rules that took effect this week. But some people are saying that the new rules will make it even harder to get credit and make credit more expensive.
We turn to Alvin Hall, our regular contributor in matters of personal finance, for information and insight. Welcome to the program, Alvin.
ALVIN HALL: I'm glad to be here, especially to talk about these new credit card rules. They're really interesting.
NEARY: What makes them so interesting?
HALL: Well, on the one hand, it's really a good thing for the average person. They won't face these horrific increases in interests that they've seen if you miss one or two payments. Now, they can't raise your interest payment unless you miss at least one payment during a 60-day period. They cannot raise it at all. That's really good.
And if you miss payments, you can then opt to say, okay, I'm going to cancel this credit card and pay it off at the old rate and not charge anything new for it. So, you won't get hit with those horrific increases.
Also, I think it's really important for people to see how long it will take them to pay off the bill making the minimum payment because that really tells you how much of your future you've already spent.
NEARY: But people are also saying there are a lot of loopholes here...
HALL: A lot.
HALL: A lot.
NEARY: Well, let's talk about some of those loopholes.
HALL: The loopholes are what I call fee madness. Now, all of the cards have repositioned themselves, so they can charge you more and more fees for virtually everything. There are now more annual fees being charged, and often they are tiered depending upon the benefits that you get with the card. So, in essence, you are being charged for the various perks that you get.
There's inactivity fees. So, we are told, if we get a credit card, don't cut it up because it will affect our credit rating. So, now just to let that credit card sit in the drawer, there's a fee. There's also an exchange fee. I travel a lot overseas, as you know, Lynn, and so I'm always charging something in euros and pounds. It's now 3 percent on most credit cards.
But here is what they did. They redefined a foreign exchange transaction. So, if I'm in Harrods, a department store in London, there you can choose to pay in dollars or pounds. In the past, if I paid in dollars, I would not get hit with an exchange fee. Now because that transaction occurs in a foreign store, you still get hit with a 3 percent sales charge.
And here's my favorite, the reinstatement of points fee. This is from American Express. Let's say that your payment is late for some reason. The points that you would normally earn for your purchase, they are canceled, but you can pay $29 to have them reinstated. It's fee madness.
(Soundbite of laughter)
NEARY: Let me ask you about that inactivity fee, because...
NEARY: Which is better then? Should somebody get rid of a credit card that they're not using if they're going to be charged a fee, even though they tell you not to do that? I mean, where do you go with that?
HALL: In reality, here's what you should do. You should get rid of the credit card. But you need to make sure that over the next three to six months, you're not going to take out any major line of credit, like apply for a car loan or mortgage loan, so that your credit can go back up.
I think that the credit card agencies really need to be much more diligent about monitoring this. And when somebody cancels a credit card, they should be able to write a letter to the credit reporting agencies saying I have voluntarily closed out this account because I no longer use this credit card, and it shouldn't affect their credit rating.
NEARY: Now, does this affect debit cards at all? Has this have any effect on debit cards?
HALL: Some of the fees are the same, like the transaction fees for foreign exchange transaction, they are the same on debit fees. But mostly, they are hitting credit cards where they can. But, Lynn, Alvin Hall has a statement. When there is money, there is always creativity. It's only a matter of time.
(Soundbite of laughter)
NEARY: Before what?
HALL: Before they'll come up with another creative way to tap into the money that's in your pocket. Lynn, you and I and a hundreds of thousands of millions of other people, we pay our bills on time, but we are being charged all these fees because the banks, one, say that they have lost so much money from all of those people who were delinquent. But also, the banks have a sense of entitlement to the cash flows that they have earned from these credit cards for all these years.
NEARY: Now, the president has said that this will shift the balance of power back to the consumer, do you agree with that? I mean, will it really?
HALL: I do, in a way. If you don't travel abroad very much and you are not a person who wants perks on your credit cards, then yes, you can go out there and shop for a no-annual-fee credit card that gives you probably the best perks you can have if you want a simple credit card, the cash back option.
But if you're somebody like me who spent last year 57 flights around the world, right, I spend a lot of money overseas. So, for me, the options are quite limited actually. So, I think if you don't travel, it does give you the option of saying, I will cancel this credit card if they raise my interest rate up so high and I'll look for another one.
NEARY: One thing we haven't talked about, another negative affect of this that I've read about is that it could make it harder to get credit. Is that right?
HALL: Yes. It does make it harder to get credit. As you know, when the recession occurred and all of the delinquencies started as well as the defaults, credit card companies came and just slashed people's credit lines. You know, some people had $4,000 credit line that was slashed down to a 1,000 or 350. What happens though, if you start to utilize a larger percentage of your credit, that means your outstanding balance is a larger percentage of your available credit line, that diminishes your credit rating.
So, if they cut your credit line, it damages your credit rating a little bit. You can build it back up. So, it's a double-edged sword. It sounds good at some point, but all of these laws have these little compromises in them that the government really should have said no, no, no, that needs to go away to protect the average consumer. But as we know, lobbyists have the ears of the politicians more often than not.
NEARY: Alvin Hall is TELL ME MORE's regular financial contributor. He joined us from our bureau in New York. Great to talk to you, Alvin.
HALL: Always good to talk to you, Lynn.