For years, credit card companies have increased interest rates and used small print in their contracts to boost revenues off the backs of consumers. In response, the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 went into effect in February 2010 in an attempt to put the brakes on credit card interest rates and cap so-called arbitrary hikes. But will consumers win out in the end?

Lenders have always found a way to create revenue. While Congress’ legislative efforts in regulating “usury”, lenders leapt on an end-around tactic to boost balance transfer fees and most likely will drop easy offers to consumers with less than excellent credit scores.

Regulations, Australia, and the Credit Card Industry

What may have caused an unbalance in the economy by quick and reckless lending may end up stabbing consumers in the back. You’ll find fees coming home to roost when you attempt to transfer balances to new credit cards. You can kiss seven to ten percent rates farewell!

If what happened in Australia six years ago is any indication how lenders react, merchants and consumers may be in for tough times. Down-under merchants complained about unfair interchange fees. Consequently the fees were sliced, but lenders battled back by eliminating rewards programs, increasing annual fees on Gold Cards, and reducing grace periods for applying interest on purchases. Ouch!

Caps may go a long way in slowing down profit-takers among the lenders, but when have you ever seen the balance shift in favor of debtors? If merchants inherit higher fees, won’t consumers pay in the end? In return, hard-hit consumers reeling from the economic downturn are cutting spending. It can snowball.

In the short term, caps may have made for a great beginning in reigning in gluttonous lenders, but somehow you can bet your borrowed dollar that we’re going to face the music.

The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009, which was signed into law last May will take effect on Monday, February 22nd. So what does the new credit card act say and how does it benefit credit card consumers?

Payment Allocation. Previously, credit agencies could assign your monthly payment to lower interest charges and leave higher interest purchases to gain interest. The new law changes that, so that the highest interest charges are paid on first. Thus balances can be paid off faster.

Changes to Agreement. Before the CARD Act, changes to your credit card agreement could occur even retroactively. The new law requires advance notice of 45 days for all changes except: rate changes due to the index for variable rate cards, expiring introductory rates, and not paying a workout payment as agreed.

Over the Limit Fees. The law prior to the Act of 2009 allowed an extra fee on each transaction over your limit, and you were not notified if you were over. The new law does not allow a transaction to occur if you are over your balance unless you opt in for this action. WARNING! Be on the lookout for this option in a disguised fashion in your mailbox.

Age Restrictions. As most know. getting a credit card was super easy for the 18-21 age group, and this was causing major problems, especially for college students. With the new law, if someone under 21 can prove that they have a job and can make payments on a credit card, the requirement for a co-signer will be waived. Otherwise, a co-signor will be required. WARNING! If you co-sign for anyone, you become liable for any unpaid amount.

There are additional — yet less traumatic — stipulations within the new law as well. For example, statements have to be mailed at least 21 days in advance of due date and no additional fees may not be assessed for payment via mail/phone/transfer etc. Free offerings to college students cannot occur within 1000 feet of a credit card issuer. Similarly, part of the statement must include how long it will take to pay off a credit card if only minimum payment is paid.

Responsible credit use remains paramount. But these first-ever credit card reforms go a long way to assisting smart and proper credit card use.

With tax season upon us, American Express has developed a novel way that you can pay Uncle Sam: with Membership Rewards points. According to a company press release, AmEx has partnered with a pair of online tax payment portals: Official Payment Corp., and Pay1040.com. Both companies already offered special deals for American Express cardmembers, allowing them to use Membership Rewards points to cover online tax payment processing fees. The new partnerships take the concept even further. Here’s how it works.

• Cardmembers earn Membership Rewards points by making everyday purchases with American Express.
• Pay1040.com and Official Payments Corp. both allow participants to convert 200 rewards points into $1 in IRS payment.
• Use your American Express card to pay the balance of your tax bill, and you’ll even earn points toward next year’s payment.

The points conversion program takes advantage of IRS rules that allow Americans to make up to two third party tax payments each year. This way, you can still make another credit card payment to the IRS if your points don’t cover the entire bill. It takes about five to seven business days for payments processed by third party companies to post to your IRS account. Therefore, if you intend to convert points into tax payments, give yourself at least a week before the IRS’ April 15 filing deadline.

Not Every AmEx Cardmember Will Get to Pay the IRS with Points

On average, the IRS reports that most individuals get refund checks in the neighborhood of $2,300. However, small business owners who like to earn Membership Rewards points by managing company expenses on their AmEx cards could have the best chance of landing an IRS bill instead of a refund.

Of course, a 200 point to $1 ratio might not be for everyone, even those of us scrambling to find ways to pay off the IRS in a pinch. Many of the luxury rewards offered on the American Express website translate to somewhat more favorable valuations. However, if your tax software surprises you by telling you that you’re in the red for the year, Membership Rewards points could be a great way to keep from tapping into your savings or increasing your credit card balance.

If you tightened your belt and cut down on your spending last year, it seemed to make sense to cut loose in December and buy holiday gifts, decorations, and other goodies with your credit card. Now, you have a post-spending hangover. Wincing won’t make it go away, though, and come the first week of February you’re bound for more pain when you receive your credit card statement. You may have to apply some new discipline this year if you want the ache to go away.

Take heed; it’s not a catastrophe. But here are things you should consider:

• Paying more than the minimum balance on your credit cards. Consumer Credit Counseling Services reports that paying a $60 minimum payment on a credit card balance of $3,000 will end up costing you $2,780 in interest before you can retire it all. But if you pay $110 per month, you can eliminate the debt five years sooner and save yourself $1,800 in interest.
• Finding a low-rate credit card and transferring your debt. You’ll need good credit to do this and, with new credit card laws in place this year, you may find higher transfer fees than in 2009. Depending on your debt, however, a transfer may still save you thousands of dollars in interest charges.
• Negotiating with your credit card company. There’s no reason to be rude when you call, but hold your ground. If they learn that your next step is to apply for another company’s card at a lower rate, they may try to keep you by reducing your interest rates or fees.
• Signing up for a nonprofit debt management program. Consumer credit counseling companies can negotiate with credit card companies on your behalf to reduce interest on your debt. Typically, you’ll need a hefty outstanding balance to attain services, but it may stave off a potentially disastrous bankruptcy. Please be careful when selecting a debt management service.

While you’re at it, create a high interest savings account and put away money for next December’s shopping so you can avoid this pain next year.

According to the Wall Street Journal, Chase will be rolling out a new points-based rewards program called “Ultimate Rewards” today. Here’s a snippet of the article:

Under the points-based program, dubbed Ultimate Rewards, customers will earn points for every dollar spent on certain Chase credit cards, with no earnings caps or expiration dates. Points can be redeemed for travel, cash, statement credits or gift cards, generally on a one-for-one basis with each point worth one penny. Users can also redeem points for merchandise, although the redemption rate is slightly less than one percent.

This is just a quick note to let you know that the Senate passed their own version to Credit Card Holders’ Bill of Rights by a 90-5 margin. As soon as the House and Senate settle their differences, the bill will be sent on for the President’s signature.

Full details from FCN: Credit Card Reform: The CARD Act of 2009

In case you haven’t heard, the House of Representatives overwhelmingly passed a new piece of credit card legislation last week. Dubbed the Credit Card Holders’ Bill of Rights, this bill would require card issuers to give cardholders 45 days notice of rate increases, prevent retroactive rate increases, and forbid other “unfair practices.” It’s now up to the Senate to move this bill forward, though Senate Majority Leader Harry Reid has been quoted as saying that it’s unclear whether or not the bill will achieve a filibuster-proof 60 votes.

As a sidenote, many of the proposed regulations overlap with new rules put forth by the Federal Reserve. Unfortunately, the Fed’s rules won’t kick in until July 2010, whereas the new legislation could be in place within a few months.

If you’re in the market for a 0% balance transfer, you might want to check out State Farm Bank. Their “Good Neighbor” card currently comes with a no-fee, 0% balance transfer offer that’s good for up to 9 months. Simply open an account and execute the transfer within the first 90 days of card membership.

This is remarkable. According to an article in the Chicago Tribune from earlier this year, a single family received 445 credit card offers, including 35 that were addressed to his kids, ages 8 and 11. The offers weighed in at a total of 23 pounds, and included pitches for 0% balance transfers, free airline miles, etc.

So… In case you still needed to be convinced, this is a great example of why you should opt out of credit card offers. If nothing else, just think about how much waste you’d be saving.

Source: Chicago Tribune

I just received an e-mail from a reader named Matthew who reports that American Express is re-working their cash back percentages on the AmEx Blue Cash rewards credit card. As you might recall, this card previously offered 5% cash back rewards on “Everyday” purchases (gas stations, grocery stores, and pharmacies) and 1.5% cash back on all other purchases once you reach $6500 in spending for the year*.

Well, according to Matthew…

The non-5% rewards will be dropping to 1.25% instead of 1.5% after $6500 in annual spending. In addition, purchases over $400 at gas stations (how would you get that high? I guess if you’re a trucker…) will no longer be classified as “Everyday” purchases. The last major rewards change was that it now specifically states the purchases must be made for personal consumption.

This information was apparently sent out with April card statements. I’ve since checked the application page for this card, and it seems that Matthew’s information is correct. The lower reward level after you reach $6500 in spending will indeed be 1.25%, and mega-purchases at gas stations (the $400 limit appears to be per transaction) will no longer qualify for 5% cash back.

While this might not strike you as a huge change, the drop from 1.5% to 1.25% represents a 17% decrease. Thus, while it’s still a good card, it’s not quite as good as it used to be.

*Note: Prior to hitting the $6500 spending level, this card pays 1% rewards on “Everyday” purchases and 0.5% rewards on everything else.