The new credit card rules

Question: The new credit card interest rules [say] any payment amount over the minimum would be applied to the Higher Interest Balances when the new law takes effect. The question I have is if the Act applies to Existing Credit Card Accounts or just New Accounts issued after the Act takes effect. Today I asked my Citicorp Customer service rep & she said her take was that the Act only applies to New Accounts issued after the Act takes effect & not on Existing Accounts but so far they have been told nothing. What is your take on this? Existing Accts or New Accts? When does the Acct take effect anyways? I have 1 balance @ 15.99% & 1 balance @ 28.99%. You can see my concern. Thanks for checking on this. Gary

Answer: You're absolutely right that the new credit card law requires card issuers to put any payment above the minimum toward the balance with the highest rate. The starting date is February 22, 2010 unless Congress pushes up the effective date. (An initiative to do so is stalled.) The change isn't restricted to new cards. The requirement applies to all consumer credit cards.

It's a definite improvement over past practice. Credit card issuers typically applied extra payments to the balance with the lowest interest rate. That kept the higher interest rate balance alive longer.

Creditcard.com offers a lot of useful information on the new credit card law. You can see its summary of the rules and regulations here. Billshrink.com has an intriguing site that looks at where credit card companies are in complying with the new rules even before they take effect: According to Billshrink, none of the card companies have yet changed their practices so that the extra payments go to the most expensive balances first.

About the author

Chris Farrell is the economics editor of Marketplace Money.

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