New Credit Card Rules Will Provide Relief…in 2010

Good news for U.S. consumers struggling with credit card debt: The Federal Reserve has enacted a new set of rules governing how banks assess interest rates and fees that could save credit card customers a bundle. Now for the bad news: The changes won’t go into effect until June 2010.

The new credit cards rules will stop credit card companies from using several practices that punished customers relentlessly for the smallest mistakes.

Your interest rate can’t go up just because you pay a day late
Credit card companies will no longer be able to increase your interest rates just because you’re a day or two late…you’ll need to be at least 30 days late before they can assess a fee. They will also no longer be able to increase your interest rates just because you are late on another credit account. And, they will need to provide you with a statement at least 21 days ahead of the due date, so you’ll have plenty of time to make a timely payment.

Your payment won’t be applied to low APR balances first
Next up in the new credit card rules is how credit card companies assess interest rates. Credit cards are famous for applying your payments to balances with the lowest interest rates first, meaning if you transfer a balance at 0% and then charge an item at 18%—you’ll be paying 18% on that purchase every month until your transferred balance is paid off. The Fed said no more. Although that sounds like good news (and it is), there is a downside: Credit card companies will likely do away with 0% balance transfer offers. If you can, get one now!

No more outrageous fees on bad-credit credit cards
Finally, the Fed also imposed a new rule that limits initial set-up fees a credit card charges to half the available credit limit. (A common practice for credit cards available to people with damaged credit is to charge $275 in fees on a $300 credit line). Therefore, in order to use the credit line and begin building credit again, they must first pay down the fees.

While these new credit card rules provide some long overdue help for consumers who have fallen into credit card debt, they come with a cost to those who have overly relied on credit cards to finance their lifestyles—credit card companies may further tighten credit and offer credit cards to only the best qualified borrowers. That in turn, will force a lot of people to ween themselves off of credit cards, perhaps for good.