It won’t be long now before the said reforms in the credit card industry that would put an end to sudden jumps in interest rates and credit card fees will be made into law. In a sweeping vote of 90-5 Tuesday (May 19, 2009), the Senate passed the credit card reform bill only a few weeks after the House passed its own version of the bill in a 357-70 vote.

While an acceptable compromise would still need to be worked out between the House and the Senate versions of the bill, it’s looking more likely that Pres. Barack Obama will get that piece of legislation up and running before Memorial Day.

Sen. Christopher Dodd, chairman of the Senate Banking Committee calls it a “victory for every American consumer who has ever suffered at the hands of a credit card company.” Before consumers take out the confetti and pour out the wine in celebration through, it’s important to understand what these so-called reforms primarily cover and what it means for the average cardholder:

  • The bill now imposes restrictions on when a bank or credit card issuer can hike up the interest rates. Only if a consumer fails to pay the minimum amount 60 days after due date will the banks be able to apply a penalty interest rate on the existing debt.
  • Credit cardholders will also get some relief when it comes to sudden rate hikes which are charged on them without due notice. Before they can raise interest rates, banks will have to give a 45 days’ notice to the client concerned.
  • Notices will also have to be given out in advance before banks can alter a credit card’s terms such as making major changes to the card’s rewards program which can affect consumers who have been painstakingly saving up points for a particular reward.
  • The credit card bill must be sent out no later than 21 days before due date.
  • Early morning deadlines are a thing of the past. Late penalty fees should not be applied to payments which are received by 5 pm of the due date. This should now accommodate check payments that arrive with the afternoon mail. Also, penalties should not be imposed if the due date falls on a Sunday or a holiday and payment is made the following banking day.
  • If you’re being charged different interest rates for different types of purchases (e.g. regular purchases, cash advance, and balance transfer) on a single card and you pay more than the minimum every month, the bank should apply the “excess payment” to highest-interest debt first.
  • If you are using your card over your credit limit unknowingly, it’s because banks are allowing you to – for a $39 fee. Now, you have the right to know that you are spending over your limit and more importantly, paying for that “privilege.”
  • Students will now have a harder time availing of a credit card. Those under 21 years of age will only own a card provided that a parent, legal guardian, or spouse is the primary cardholder. Students who are already earning can however, show proof of his income to obtain a waiver for the co-signer policy.

While the above provisions may sound like music to the ears of some consumers, it’s not all good news for credit cardholders who have sterling credit, paying off full balances every time and on time. In an effort to make up for whatever income would be lost from the passage of the new credit card bill, banks could now go after those in good credit standing.

Banks are likely to look into bringing back card annual fees, and cutting back on rewards programs including cash back and frequent flier programs. Banks are also considering the possibility of charging interest as soon as the purchase is made instead of giving a grace period where consumers can pay off their balance in full, thereby giving no income to banks and credit card companies.

“It will be a different business,” said Edward L. Yingling, an executive representing the American Bankers Association. “Those that manage their credit well will in some degree subsidize those that have credit problems,” he adds.

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