Posts Tagged ‘CARD Act’

Should College-Age Kids Have Their Own Credit Card?

Should college-age kids have their own credit card? That’s a difficult question to answer and a lot depends on the maturity level of the kid. One 18 year old may be vastly more mature and financially savvy than another, so making the blanket statement that no college-aged child can manage his or her own credit card isn’t quite correct.

There is no doubt that giving a credit card to someone who doesn’t yet have a stable income is risky, but, if your college-aged child is otherwise responsible, then allowing them to begin to build that all-too important credit history early may be a good choice.

Regardless of whether your child is a spendthrift or a miser, be sure to comparison shop for the best card for him or her, and along the way,  provide a little financial education as well. It is too bad that high schools don’t offer money management classes and sadder still, colleges are all too willing to lend money to their students without educating them on the interest they are accruing and the repayment terms. In this, you, as the parent, need to take the lead on this.

The CARD act of 2009 has some special provisions regarding the issuing of credit cards to those under the age of 21. Among these is the requirement no credit card may be issued to someone under 21 unless they a.) have a cosigner, or b.) they can demonstrate the ability to repay the credit card balance. In addition, no “prescreened” credit card offers may be sent to those under the age of 21.

Having good credit is of vital importance these days, and young people need to be taught sound money management practices early so that they can avoid credit troubles down the line. Having a credit card and using it wisely is a good way to start learning these principles.

Warning To All Capital One Customers

Capital One will apparently charge you a late fee if your payment is made past the payment cutoff time, regardless of time zone differences. For example, one lady was charged a late fee because she made her payment 45 minutes after the cutoff time, which was 5PM. However, she’s on the West Coast and Capital One’s payment center is on the East Coast.  Going by her time zone, her payment was on time.

It appears that Capital One is taking advantage of a major loophole in the CARD Act, which does allow credit card companies to set a 5 PM cutoff time for accepting payments, but fails to specify that the cutoff time must be time zone neutral, meaning that payments will be counted as being made on time according to the time zone of the customer.

It should be noted that the government had to make it a law that the credit card companies must give you enough time to pay your bill, and that the amount of time had to be spelled out to the letter. The government should have therefore known that it would need to specify time zone issues as well.

Once again, you can count on the credit card companies to interpret the law in any way that best increases their profits. Fee income in the giant unregulated world that existed prior to the CARD Act’s passage has left the banks and credit card companies feeling entitled to screw their customers and make big bucks doing so.

Until the government acts, if it even will, to amend the law for these situations, be sure to make your payments in the morning that they are due, or if possible the day before, to avoid any chance that you’ll be screwed into paying a late charge.

New Rule By Fed Limits Credit Card Late Fees & Penalty Fees

Yesterday, the Federal Reserve issued a new rule that addresses unreasonable late fees and other penalty charges and requires credit card companies to re-evaluate any interest rate increases they’ve made since January of 2009.

The new rule does the following:

1: Prohibits late fees greater than $25 for the first late payment unless the credit card company can demonstrate that such late payments cost them a greater amount.

2: No penalty fee may exceed the dollar amount of the violation. This means that if you go over your credit card limit by $10, the credit card company can’t charge you more than $10. Likewise, if you’re late on your minimum payment of $35, the penalty associated with missing this payment can’t exceed $35.

3: Prohibits charging inactivity fees on dormant accounts. No longer can credit card companies charge you just because you aren’t using the card. They still can close your account, however.

4: Credit card companies are required to reconsider any interest rate changes they’ve made since January 1, 2009 and reduce them if they can’t be justified.  While not an interest rate ceiling, which would be better, this part of the rule makes credit card companies reduce the rates they inflated to compensate for the CARD Act’s effect on their bottom line.

CARD Act of 2009 Makes Paying Down Your Credit Cards Easier

The Center For Responsible Lending released its analysis of the payment provisions of the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (the CARD Act) earlier this month. It found that new provisions in the law  require credit card companies to apply any amount paid above the minimum payment to the balances bearing the highest rate of interest.   This translates to a savings of two dollars in interest for every one dollar paid above the minimum payment.

People who will benefit the most from this are those who carry balances at different interest rates. In the past, credit card companies would apply anything received above the minimum to the balance carrying the lowest interest rate, allowing them to generate more income.  This change won’t affect people with credit card balances at a single interest rate.

Really, Big Banks? Really?

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Even before the ink was dried on President Obama’s signature on the credit card reform bill, the banks were already on the hunt for loopholes in the law to exploit in the name of profit.  In the absence of loopholes, they wanted to find new ways to generate the same amount of profit as they had before the law took effect.

An article on smartmoney.com, which is a subsidiary of the Wall Street Journal and certainly no friend of Main Street,  predicted that banks would stop offering free checking accounts.  Probably the single most laughable comment in the entire piece is this shining gem:

Already cash-strapped banks anticipate declining revenue from credit cards as rules from the CARD Act take effect, says Hank Israel, director of Novantas, a financial services consulting firm in New York.

If the banks are so cash-strapped, then how can they afford to give their top executives such large bonuses? It is true that the new law will cost the banks revenue, and recent action by the Federal Reserve to limit overdraft fees starting this summer will cut those profits even further. Let’s be clear here: the new law won’t bankrupt the banks…not even close! The banks will still bring in revenue, and plenty of it. It just won’t be quite as much.

That said, those profits that the banks are trying to reclaim can be fairly characterized  as “ill-gotten,” and complaining about their curtailment is a bit like a bank robber complaining that he can’t rob any more banks after he is caught. Further, finding new ways to make the same sorts of profits is akin to that bank robber switching to robbing armored trucks.

“The banks need to make up the lost profits due to the law in other ways,”  whine bank cheerleaders and apologists, with the inference being that but for passage of the law, the banks would not resort to such tactics.

Don’t get me wrong: there is nothing wrong with making money. There’s nothing wrong with making a lot of money. The wrong lies in how that money is made. It is just as wrong for banks to make 80% of their revenue from 20% of their most vulnerable customers as it is for someone to make his money by thievery.

Instead of whining about being regulated after years of massive deregulation that precipitated the financial crisis in which we now find ourselves, the banks should be looking at new ways to make money that add value.  No one would complain about paying for  a service that is helpful and actually does something.

Free Credit Reports: What You Need To Know

The CARD Act, the new law regulating credit card companies also sets forth  a new regulation  regarding companies that use free credit reports to entice people to enroll in paid services such as ordering credit scores, credit score monitoring, and identity theft protection services.

Basically, the new rule is this: anyone who provides free credit reports must let people know that they can obtain their government mandated annual credit report (three reports in total, one from each Credit Bureau) from AnnualCreditReport.com. This website has been established as the centralized location to allow people to obtain their credit reports for free.

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“Charge More Or Pay” Says Citi Bank To Its Credit Card Customers

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Leslie McFadden of Bankrate.com reports that beginning on April 1, Citi will begin charging an annual fee of $60 to those credit card customers who charge less than $2400 a year. Citi is not alone in this trend: other banks, such as Bank of America will also be jumping on the fee bandwagon.

Charging annual fees, at least, on some of its customers may be part of the banks’ way of coping with the new credit card law that will go into effect on the 22nd of this month. This is not surprising, but is quite sad nonetheless. 

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Credit Bureaus Now Estimating Income

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You know that the three credit bureaus, Equifax, TransUnion, and Experian collect information about your credit history, be it good or bad.  Well, now they will also be estimating your income based on that credit history, which they will be providing to the credit card companies.

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The CARD Act: Significant Credit Card Regulation

For years consumer advocates have been complaining about the lack of disclosure and transparency to consumers by the credit card industry. The CARD Act, which largely goes into effect at the end of February, 2010, aims to address some of these complaints.

The CARD Act’s provisions can be divided into four sections:

One: Regulations on Interest Rates and other Fees

While the CARD Act does not put any sort of limit on interest rates, it does regulate how and when credit card companies can increase them, and states that credit card companies must give advance notice (at least 45 days) of any increases before they occur. 

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