How Credit Card Rule Changes Affect Consumers

RENEE MONTAGNE, host:

President Obama went to Wall Street this week to push again for tougher regulation of the finance industry. There is one area where new rules are already in place, aimed at protecting consumers, and that's credit cards. To get some details on what's changed, we reached Robert McKinley at Cardtrack.com. That's a credit card information site. Good morning.

Mr. ROBERT MCKINLEY (Founder, CEO; CardWeb.com): Good morning.

MONTAGNE: Let's start with what the biggest changes might be.

Mr. MCKINLEY: Well, card holders right now are seeing less rate jacking, as it's called, where the card issuers just abruptly raise the interest rates for little or no reason. Things like student marketing definitely will be dampened after February. Also over-limit fees are finally going away and they've always been sort of a pain to consumers, but on the other side of the coin, issuers are now more picky about new accounts and certainly more stingy with credit limits.

MONTAGNE: Does that mean there'll be people who won't be able to get credit cards that could have before?

Mr. MCKINLEY: Yes, that's already happened. I mean it's a product certainly of the economy and the credit crunch that we went through the past year, and now we have almost half the consumers with credit scores that are fairly low. I mean there's - the national average rate now is 683, and 660 is sub prime, so there's a lot of consumers being affected.

Also, you know, just existing credit lines. Many - there's about 50 million cardholders in the country have seen their credit lines cut over the past year. Certainly that's going to go on too. So anyone that has any kind of credit issue is going to have difficulty with qualifying for credit cards.

MONTAGNE: You know, we all think that one of the goals here is to make it easier for someone with a credit card to know and understand - that's kind of important too - what they're being charged - fees, rates, that sort of thing. But, you know, when you get these letters from your credit card company and they're filled with fine print, is it really that much clearer what is going on with your card?

Mr. MCKINLEY: That's sort of the downside to these new rules. I mean they do benefit consumers, but yet it still leaves us with a confused consumer. For example, this opt in and opt out, most consumers don't understand that. It's the same thing like the two-cycle interest calculation that was used and is now going to be prohibited under the new rules. No one, even lawmakers, could understand how that thing worked.

Transparency is one thing that really was not fully addressed in these new rules, but at least many of these unfriendly and unfair practices will go away.

MONTAGNE: Although you just mention one that presumably everybody knows, but actually I don't - opt in and opt out?

Mr. MCKINLEY: Yeah. For example, if you get notified of a rate increase under the new rules, you have 45 days to decide whether you want to take the new rate or not. Otherwise…

MONTAGNE: Or cancel the card?

Mr. MCKINLEY: Yeah, that's generally what happens. The card is refused. Say I don't - I want to keep my card terms. What they'll do is typically close the account and let you pay it off under the existing APRs. Well, consumers don't understand that even if you get this 45-day opt-out for a rate increase, those changes go into effect anyway in 15 days. You have the 45 days to come back, but they can start imposing that in 15 days and then hope you fall asleep and miss the opt-out, and then everything is the way they wanted it to be in the first place.

MONTAGNE: Which is, I'm sorry to say this, but I think it's true, which most people do - don't keep track.

Mr. MCKINLEY: Exactly. Well, you know, cardholder agreements were never fireside reading for most consumers, and issuers, of course, know that a confused consumer is their best customer, and they certainly will exploit these new rules. And believe me, you will see more fine print. I think that's the next level. That's what we're going to see, probably next year or there's probably going to be something coming in to deal with the actual transparency of these credit card agreements.

MONTAGNE: Robert McKinley is the founder of Cardtrack.com a consumer information Web site about credit cards. Thank you for joining us.

Mr. MCKINLEY: Thank you.

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