Significant numbers of consumers are unaware of the most important elements of the new package of credit card rules. Worse, many have erroneous assumptions about what the new rules do address.
Less than two weeks before sweeping new protections for credit cardholders take effect, vast numbers of American consumers do not have a clear understanding of what the new rules will or will not address, according to survey results released Tuesday.
At the same time, however, most consumers do have a general awareness that changes are coming to the terms of their credit cards, and they are taking steps to protect themselves against any negative consequences.
|CREDIT CARD REFORM ARRIVES|
Fuzzy awareness of new card law
The survey, conducted for the Consumer Federation of America and the Credit Union National Association, found that 61 percent of those surveyed know that new protections are on the horizon — but 65 percent don’t know that they take effect this month.
In addition, significant numbers of consumers are not aware of some of the most important elements of the new package of rules. Worse, many people are making erroneous assumptions about what the new rules do address.
For instance, 42 percent of the survey respondents wrongly believe that the law flatly and completely prohibits interest rate hikes on one card because of the customer’s payment history on another card, 36 percent wrongly believe that late fees will be limited to $35, and 31 percent wrongly believe that interest rates are capped at 20 percent.
“This lack of awareness can be costly, for example, for a cardholder carrying a balance that contains a 30 percent penalty interest rate, thinking that rate is capped at 20 percent,” said Stephen Brobeck, executive director of the Consumer Federation of America.
To be sure, many consumers will be well served by most of the protections — mandated by last year’s Credit Card Accountability, Responsibility and Disclosure Act (the Credit CARD Act) — that go into effect on Monday, Feb. 22.
“The biggest winners are those consumers who carry balances from month to month, and they tend to be people from households with moderate incomes and insecure employment,” Brobeck said. “So this is very, very helpful to the people in that category.
“But everyone benefits from this,” he said.
Credit CARD act provisions
Among those new rules:
- Consumers must be given 45 days’ notice of any changes in the interest rates of future balances or in other key terms of a credit card account.
- Hikes in the interest rates of existing balances are generally prohibited. Exceptions: If a promotional rate expires, if the cardholder makes a late payment, or if the contracted rate was variable. That last one — a variable interest rate — is a key loophole that many credit card issuers have been exploiting by changing consumers to variable rate cards prior to Feb. 22.
- Consumers have the right to “opt out” of significant changes that might be imposed on their accounts. To do so, they merely have to close their accounts and pay off the existing balances within five years.
- Limitations are imposed on the issuance of credit cards to anyone under the age of 21.
- Customers who maintain monthly balances must be told how long it will take to pay off that balance if they make only the minimum monthly payments.
- Bills must be mailed at least 21 days before payment is due.
According to the survey, though six in 10 consumers knew that some package of protections was coming, fewer than half were aware of two other important components of the CARD act:
Credit card issuers must apply any payments to balances carrying the highest interest rates first, and issuers cannot impose over-the-limit fees unless customers specifically authorize such transactions.
There is significant awareness by consumers that changes are afoot. They may be spotty on the details, but their antennas certainly are up.
|— Bill Hampel|
Credit Union National Association
“There is significant awareness by consumers that changes are afoot,” said Bill Hampel, chief economist for the credit union group. “They may be spotty on the details, but their antennas certainly are up.”
So much so that 85 percent of the credit card users who reported noticing a recent change in the terms of their card are taking or planning action based on that notification. Nearly 70 percent of those customers say they will use the card less frequently. Sixty-two percent said they would try to pay off the balance more quickly.
That makes sense to experts such as Hampel.
“All hands on deck,” he said. “Get your credit card debt as low as possible. That’s always the best defense.”
The CFA/CUNA survey of 1,103 American adults was conducted between Jan. 29 and Jan. 31 by Opinion Research Corp. The margin of error is plus or minus 3 percentage points.