A Lot Of Action In Advance Of CARD
Anyone who has a credit card knows by now that card issuers are clamoring to enact new rules before the CARD act becomes effective in February.
Congress Wants To Head Them Off At The Pass
Now comes word that some of the original proponents of the CARD act want to amend it to take effect even sooner. The Wall Street Journal reports, that Representatives Barney Frank and Carolyn Maloney will propose a bill that would move up the implementation date by two months to December 1st from February 1st.
Personally, I wish it would go into effect immediately, but realistically two months won’t make much of a difference. Part of the rationale is that people doing their Christmas shopping should be able to be guaranteed what interest rate they will have to pay for their purchases. Either way, credit card companies have plenty of time to raise rates and fees in advance of the legislation.
I suspect a lot of these rate and fee increases are precautionary. The market is still highly competitive, and I would expect plenty of promotional rate and fee reductions in the next year as companies struggle to attract new customers and win back old ones.
What You Can Do
The folks over at SmartMoney have put together a list of six traps to avoid. Lets take a look:
1. Higher Interest Rates. Everyone is getting these. The best thing that you can do is not pay them. If you are not one already, now is the time to become a “deadbeat”, someone who uses their credit card as a method of payment not a method of finance. For the rest of you, keep looking for cards with lower rates, they are out there.
2. Moving from fixed to variable rates. Part of the CARD act says that companies can no longer market rates as “fixed” if they can change them at any time. In response, card issuers have converted almost all “fixed” cards to variable cards. This is either a huge loophole in the law, or merely eliminating the deceptive marketing practice of calling cards “fixed”. Since no cards were ever really “fixed”, I tend to go with the later explanation.
3. Annual Fees: Everyone is saying that cards will start having higher annual fees. That may be true, but to be successful, they are going to have to give card holders something valuable in return. I recently applied for a Southwest Airlines/Chase card with an annual fee. I did have a targeted offer of 16 Rapid Rewards credits, essentially a free flight. There is an annual fee of $49, but I think that is worth it.
4. Usage Fees: I really don’t know where the authors are getting this idea. They are merely speculating that this may happen. I am having trouble imagining this being very successful for all but the lowest sub-prime sector of the market.
5. More Junk Mail. Like higher interest rates, this really doesn’t bother me much. I have long ago registered with the Direct Marketing Association and all the major credit agencies to opt out of all solicitations. That junk mail exists in huge volumes, proves that the market is highly competitive. It is also very easy to opt out.
6. Reward Hoops. All reward card users and loyalty program gurus know that rewards will inevitably become harder and harder to redeem. The authors predict that credit card rewards will go the way of airline rewards. I am not so sure. As I have pointed out before, airlines best customers are frequent travelers at their hubs, most of whom really can’t switch to other airlines conveniently. Switching credit cards is the easiest thing in the world. If I am not getting value out of my credit card company’s reward program, I will drop it or switch to a cash back card, it is that simple.
Conclusions
I still have no doubt that the CARD act is a huge win for consumers. Credit card companies are trying to mitigate the damage in advance of the CARD act becoming effective. Don’t let that scare you. Maintain good credit, don’t go into debt, and you will always be able to find a card that meets your needs.
