The first phase of the new Credit Card Act went into effect last summer, and with it came a mass of mail designed to alert cardholders of changes to their accounts, terms, and fees.
Under the legislation, consumers must get at least 45 days advance warning of changes to their credit card accounts (previously only 15 days was required,) and at least 21 days to pay their monthly credit card statements without threat of late-fee penalties. The regulations also allow consumers to opt out of interest rate hikes and fee increases, and make it possible for cardholders to cancel their accounts and pay off balances under the old, lower interest rates.
The rules are creating a paper trail that leads right to consumers’ mailboxes. These “important notice of changes to your credit card account” letters are becoming a common sight. Riddled with legalese, the notices cover important issues like minimum interest charges, over-the-credit-limit fees, transaction fees, and charges for returned checks and stop payments.
Many consumers will be tempted to feed these notices right into the shredder, but Sandy Shore, a senior counselor with Freehold, New Jersey-based credit counseling and debt management firm Novadebt, says the letters deserve a second look. “A lot of people assume they’re just getting a form or standard letter so they ignore it and toss it in the trash,” says Shore. “Then they’re shocked when the new terms kick in.”
To avoid nasty surprises on your next credit card bill, Connie Prater, senior writer at CreditCards.com, an Austin-based online credit card marketplace, advises consumers to read the front and back of each page and to enlist the help of the credit card company itself to decipher legal terms and statements. “Pick up the phone and call the company’s 1-800 number,” says Prater, “and make the customer service rep and/or their supervisor explain it to you in plain English.”
When reading the letters, look for phrases like “change in terms,” “fee increase,” and “minimum payment,” all of which can, of course, have significant impact on your monthly credit card bills. “A few months ago, Chase revised its formula for figuring monthly minimum payments and many cardholders saw their payments jump significantly,” says Prater.
Interest rate increases and the switch from fixed-rate to variable-rate interest rate structures, should also raise red flags. Credit card companies are using such tactics ahead of a February 2010 mandate that will make it more difficult for them to change interest rates and how they’re structured.
If the credit card issuer can’t explain the letter to you, organizations like the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling can help.
Once you’ve deciphered your letter, you may find it includes objectionable terms or fees. You have 45 days to take action, according to Prater, who advises consumers to first consider how the changes will impact their financial situation, and then evaluate the options. If, for example, your interest rate is doubling, you might consider closing that particular account and either paying that card off or transferring the balance to a card that has a lower interest rate.