The Credit Card in 2010

The new Credit Card Accountability, Responsibility, and Disclosure Act will go into effect February 22, 2010. Americans will see stronger consumer protections against interest rate hikes within the first 12 months of opening an account and easier to understand monthly statements. College students will no longer be easy prey for credit card companies. However, will consumers be the only winner?

Credit card companies went into full attack mode as soon as the act was announced. Finding loopholes became an industry norm and interest rates soared to the highest levels seen in many years. Banks now charge a penalty annual percentage rate for a payment that is one day late and will continue to double cycle bill until it is prohibited on February 22.

What else can consumers expect?

Banks will now begin to place limits on inactive cards. Inactivity fees or a reduction in credit limits are two penalties consumers will see if cards sit inactive for a long period. Some banks will close inactive accounts.

Inactive accounts do not make money for banks. They do not have interest fees or other fees from which to garner funds. The bank does have to print and send the card and monthly billing statements which results in a profit loss to the credit card company.

Consumers can now expect banks to consider more than credit scores when issuing credit cards. It is no longer enough to keep a good credit rating to qualify for a high credit limit. Credit card companies look at environmental issues and other factors when issuing cards. For example, a person living in a low-income area with large numbers of unemployment will receive a lower credit limit than a person with the same credit rating living in a ‘better’ neighborhood.

Banks use very sophisticated technology to determine a person’s reliability. They do not want to be left holding the bag, especially after the recent down turns in the economy and the new limitations on credit cards.

Since banks will be banned from going after college students, they must find a new group of susceptible individuals to catch in their web. College students were the perfect target with their tendency to overspend and stay loyal to the first credit card company who gave them a charge card. Banks will now go after the parents of college students, convincing them to co-sign for their child’s credit card and offer such features as parental control monitors.

A surge in secured credit cards is expected. A secured card will be popular with consumers who have bad credit due to bankruptcies or other reasons. This type of card can help them rebuild their credit. Secured cards do have fees associated with loading money but these are usually not substantial and less than interest fees on standard credit cards.

One of the largest fears consumers face is debit card fees. The lack of any fees, when used conservatively, makes debit cards popular with consumers. However, some banks are putting fees on debit cards. The first debit cards to feel this charge will be ones with rewards programs. It will most likely come in the form of an annual fee.

The new credit card act, once thought to ease consumer fear, gives Americans new reasons to worry about credit cards. The smart consumer must stay on top of the economic and financial news and make smart decisions to protect their credit in 2010.

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