Beware of loopholes in the new credit card law

Beginning Monday, some of the more outrageous practices of credit card issuers will be outlawed. But just like a bully on a playground who doesn't punch when the teacher is watching, lenders will find ways to continue pummeling consumers.
   
The Credit Card Accountability, Responsibility and Disclosure Act of 2009 (also known as the Credit CARD Act) established sweeping changes intended to help curtail certain industry practices, reduce unfair fees and rein in huge interest rate increases. Under the new law, issuers also are required to disclose how long it will take customers to eliminate their debt if they choose to make only minimum monthly payments.

"This law is putting the consumer in a stronger position. It's not absolving them from the requirement that they pay their bills, but it levels the playing field quite a bit," said Austan Goolsbee, a member of the president's Council of Economic Advisers. Credit card reform falls under his portfolio.

The CARD Act is a big blow to the bullying tactics that issuers have employed for so long. However, as with any law, loopholes exist. Here are just a few of them under the CARD Act:

- Issuers cannot raise interest rates on existing balances. If you have a balance, your old interest rate will apply to that balance.

The loophole: Your credit card company can still raise the rate for new charges under certain conditions, such as if the card carries a variable indexed interest rate or an introductory rate promotion ends. For many of you, kiss those low fixed rates goodbye. Surveys conducted in the months before the law's enactment found that many issuers boosted interest rates on purchases and cash advances. Even customers with excellent payment histories have seen their rates jump. To read all the exceptions as part of this provision, go to http://www.federalreserve.gov and click on the link "What You Need to Know: New Credit Card Rules."

Companies are allowed to increase the interest rate on new charges if you are more than 60 days late. In the past, you might have been late just one month before being hit with a penalty interest rate.

Fair enough. If you are late paying your bill, the company should have the right to penalize you with a higher rate. However, there's enough room in this loophole to drive a semi through. There is no federal cap on the interest rate the card company can charge.

- Issuers cannot charge over-the-limit fees unless a consumer agrees to have such transactions approved. You must tell your credit card company that you want to be able to go over your credit limit.

The loophole: I've already heard from one reader who said that when he was contacted by his credit card company, he felt pressured to opt in. As he tells it, the representative said he should opt in to avoid having a purchase he needed be declined.

Other customers might be persuaded into opting in by promises of a lower over-limit fee, said Chi Chi Wu, staff attorney at the National Consumer Law Center.

Just opt out. The companies might try to convince you that all kinds of dire things might happen if you can't spend over your credit limit, but the concern is for their bottom line, not yours. Just don't do it. If you do opt in, your credit card company can impose only one fee per billing cycle. You also can revoke your opt-in at any time.

- If your credit card company requires you to pay fees (such as an annual fee or application fee), they cannot total more than 25 percent of the initial credit limit. For example, if your initial credit limit is $500, the fees for the first year cannot be more than $125.

The loophole: This limit does not apply to penalty fees, such as those for late payments.

- Consumers who have been 60 days late and who are subject to a penalty rate have the right to earn back the lower rate by making minimum payments on time for six months. This provision doesn't go into effect until August.

The loophole: Companies can do a lot of things once you hit the 60-days-late mark. You better believe that issuers will not be very forgiving in this area.

"We've always known credit card companies are very, very clever in getting more profit out of consumers," Wu said. "And they are going to be even more clever in finding ways to make more money even with these new rules."

The CARD Act has made things better for credit card holders, but it can't anticipate new tactics by the companies. So be ready to fight.

Readers can write to Michelle Singletary c/o The Washington Post, 1150 15th St., N.W., Washington, D.C. 20071. Her e-mail address is singletarym@washpost.com. Reader can also follow her on Twitter at: SingletaryM. Comments and questions are welcome, but due to the volume of mail, personal responses may not be possible. Please also note comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.