Your Money: Guide to New Credit Card Rules, NY Times
President Obama signs the new credit law (Credit Card Accountability Responsibility and Disclosure Act) this weekend, which means that by mid-August consumers will be spared some of the most egregious fee charges and rate hikes. (This article by the Christian Science Monitor breaks it all down nicely, as does this CreditCards.com story.)
Some important provisions were killed, however — most notably caps on interest rates and fees. Also, the new law won’t apply to corporate cards. So if you’re incorporated, even as a limited liability corporation (LLC) — a status many small businesses in particular choose — your corporate card isn’t covered by these new rules.
The silver lining may be that Congress has called for a study of how small businesses use corporate cards, no doubt with the hope by some legislators to revisit extending the rules.
(Note: As of a month ago, when I interviewed Liz Pulliam Weston for a story on credit cards, she said that corporate cards for small businesses can offer much better terms and perks, so don’t write off a corporate card without checking offers first.)
Will the new law potentially dry up credit card reward programs, or inadvertently punish those who make their payments on time, and/or in full every month? Scott Talbott, lobbyist for the Financial Services Roundtable, says so. In this story from the Chicago Tribune, which you probably heard as a soundbite somewhere, he says:
The restrictions on pricing imposed by the credit card bills will result in changes elsewhere, including a return of annual fees and a termination of rewards programs. Those who manage their credit well will be subsidizing those who don’t.
But other experts I talked to at the time this law was making its way through Congress weren’t so sure. “A minor key below the whole debate has been the interchange controversy,” Liz Pulliam Weston, MSN Money columnist says. Interchange fees, which were left untouched by this legislation, are the fees stores pay to credit card issuers so they can accept your card for payment. “Interchange fees pay for reward cards,” Pulliam Weston explains. “If there were restrictions on those, you might see some restrictions on rewards.”
But that didn’t happen. So don’t count on it. “We rewards customers are pretty profitable,” Pulliam Weston says. “Card issuers want to keep us happy.”
Just how profitable are we talking? If you’ve ever frequented a store or restaurant that still doesn’t accept cards, or were required to make a minimum purchase in order to use your card, you understand that these merchant fees mean big bucks to the card companies: $48 billion in 2008 alone, according to this Politico article. Check out this succinct retort to the “end of credit as we know it” argument.
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Tags: credit card law · credit card legislation · credit card rules1 Comment
[...] been a lot of press about rate-jacking in the wake of the recession and new credit legislation, before the rules actually take effect in July 2010, but surprisingly few pixels on what to do [...]