The Future of Plastic: 5 Credit Trends for 2010
Card Sharp by Aleksandra Todorova - SmartMoney - January 12, 2010
If 2009 was the year of hammering out credit-card reform, 2010 will be the year consumers feel the effects of those changes.
The CARD Act goes into effect on Feb. 22 and with it come stronger consumer protections. Banks will no longer be able to raise interest rates during the first 12 months after opening an account – or hike rates on pre-existing balances altogether. Credit-card payments, if exceeding the minimum, will be allocated to the higher-rate balances first. Monthly statements will become easier to understand and the ability to issue credit cards to college students will be severely restricted. (For a more detailed outline of the new rules, click here.)
But these new safeguards will come at a price. Although card issuers focused last year on making sure they’ll be in compliance with the new law, now they will have to figure out how to make money given the changes in their business, says Dennis Moroney, a research director at financial-services research group TowerGroup. This “will be the year of transition for the banks,” he says.
Consumers have already gotten a hint of what’s to come. As soon as President Obama signed the CARD Act into law last year, banks sprung into action, hiking interest rates across the board and switching their APR formulas from fixed to variable rates. They’ve already found loopholes in the new law, including a creative way of charging a penalty APR as soon as a payment is one day late and continuing to implement the soon-to-be prohibited practice of double-cycle billing. (more)
If 2009 was the year of hammering out credit-card reform, 2010 will be the year consumers feel the effects of those changes.
The CARD Act goes into effect on Feb. 22 and with it come stronger consumer protections. Banks will no longer be able to raise interest rates during the first 12 months after opening an account – or hike rates on pre-existing balances altogether. Credit-card payments, if exceeding the minimum, will be allocated to the higher-rate balances first. Monthly statements will become easier to understand and the ability to issue credit cards to college students will be severely restricted. (For a more detailed outline of the new rules, click here.)
But these new safeguards will come at a price. Although card issuers focused last year on making sure they’ll be in compliance with the new law, now they will have to figure out how to make money given the changes in their business, says Dennis Moroney, a research director at financial-services research group TowerGroup. This “will be the year of transition for the banks,” he says.
Consumers have already gotten a hint of what’s to come. As soon as President Obama signed the CARD Act into law last year, banks sprung into action, hiking interest rates across the board and switching their APR formulas from fixed to variable rates. They’ve already found loopholes in the new law, including a creative way of charging a penalty APR as soon as a payment is one day late and continuing to implement the soon-to-be prohibited practice of double-cycle billing. (more)
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