A longtime MasterCard user, Robin Lehmann of Aurora helplessly watched in October as Citi Bank inexplicably inflated the interest rate on her credit card to 23.99 percent from a manageable 16.99 percent.
That after the bank had previously offered to lower Lehman’s rate by 3 percentage points if she would rescind her opt-outs on getting their e-mail solicitations.
She refused.
“It’s not fair, especially for a longtime customer with the good credit rating that I had,” Lehmann said. “But there are so many others having it more unfair that I had it.”
On Monday, Lehmann and millions of other Americans will get some relief from practices by credit-card companies that has been described by consumer advocates as predatory, even vampire-like.
Key provisions of the Credit CARD Act of 2009 kick in — including those that prevent issuers from willy-nilly slapping consumers with higher interest rates — changing the landscape of how credit will be provided and used, and who will ultimately get it.
“These new rules will put an end to some of the most abusive credit-lending practices that have trapped millions of Americans in debt and made it harder for them to make ends meet,” said Pam Banks, policy counsel for Consumers Union, a Washington, D.C.-based advocacy group that helped push the sweeping reform.
The banking industry was vehemently opposed to the changes at first and prophetic about the negative impact to consumers through tightening credit lines. The industry is cooperating now, though still on the lookout for ways to recoup its losses.
Among the most important changes that begin Monday:
• Interest-rate hikes are limited on existing balances unless you have a variable-rate card. You must be 60 days late on a minimum payment before a hike can occur and then must receive 45 days’ notice of the impending change, which you can refuse and close the account.
• Punitive rate increases for late payments must be rescinded if you pay your bill on time over a certain period, typically six months.
• No over-limit fees if you don’t agree to them. That also means your credit card can be denied at the point of purchase if you’ve exceeded your credit limit.
• Due dates must remain stable. No more moving them around, which can result in users being late.
• Fair application of payments. The oldest charges or those with highest interest are to be paid down first.
Though not required until July, changes in credit-card statements are coming too. Statements will have a simplified look that clearly tells consumers how long it will take them to pay an existing balance with just the minimum payments.
“Cardholders need to keep a close eye on changes to their accounts,” said David Polino, president of the Better Business Bureau. “The fine print . . . describes different fees and penalties that can chisel away at your family finances.”
In August, the Federal Reserve is expected to issue rules on the penalty fees that credit cards can charge and how to ensure they are reasonable.
The changes have impacted the banking system, forcing issuers to scramble for ways to recoup losses in interest revenues estimated to top $5.5 billion this year and another $11 billion in 2011, according to RK Hammer Investment Bankers.
“No one knows the potential next wave of credit disaster. Everyone is watching to see how credit-card companies will react to a changing economy,” said Adam Levin, co-founder and CEO of New York-based Credit.com, which tracks the trends in lending and card use.
One of the first moves prior to the new rules has been to drive existing customers to variable interest rates, which are less affected by the new regulations. Others are moving more toward annual fees or inactivity charges.
“We’re seeing a great deal of experimentation, such as refunded annual fees with protracted use or lower rates for those who consistently pay on time,” said Nessa Feddis, vice president and senior counsel at the American Bankers Association. “In the end, it’s the consumer response that will drive what cards will look like in the future.”
An unintended consequence of the new law: Average interest rates on new cards are creeping upward, now at 16.7 percent nationally, according to IndexCreditCards.com, a credit- card comparison website.
“We seem to be going from a marketplace in which a relatively few cardholders got into deep trouble to one in which the misery is more evenly spread,” said the site’s founder, Adam Jusko.
David Migoya: 303-954-1506 or dmigoya@denverpost.com
