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RetireeNews Fall 2009

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New Credit Card Rules

The Buyer Should Still Beware

President Obama signed the Credit C.A.R.D. (Credit Card Accountability, Responsibility and Disclosure) Act of 2009 this summer. Missouri Senator Claire McCaskill, who co-sponsored the bill, said in a May 13 press release:

"When times are tough, getting squeezed by credit card companies makes things even worse for Missouri families," McCaskill said. "For too long, I’ve heard story after story about these companies jacking up interest rates on cardholders in good standing or targeting seniors and college students with deals they can’t afford. I’m pleased to see Congress finally doing something to protect the public from the worst abuses in this industry."

Caution Sign and Credit CardWHAT IS CHANGING

Rate Increases

  • For new card owners, issuers can’t raise interest rates in the first year after the account is opened. The exceptions to this would be: the end of the promotional time period (which must be at least six months), if there is a variable interest rate, or if the minimum payment is more than 60 days past due.
  • Effective August 20, 2009 – For existing balances, there must be 45 days notice of a rate hike. Like with new accounts, the rates can’t be raised unless there is a variable interest rate, it is the end of a promotional rate, or if the minimum payment is more than 60 days past due.
  • Effective August 2010 – If the rate is increased due to late payment (more than 60 days), the rate has to return to the lower rate after six payments in a row that are on time.
  • Universal default ban — issuers can’t raise rates for reasons unrelated to the credit card account, such as owing money to another creditor.

Fees

  • Double cycle billing is prohibited (basing interest rate on an earlier billing cycle).
  • Only one overlimit fee can be charged per cycle.

Payments

  • If you pay more than the minimum payment, it must be applied to the higher interest rate. Previously, payments went to the lower rate balance.
  • Effective August 20, 2009 – Bills must be sent at least 21 days before the due date. Currently, only 14 days notice is mandatory.

Younger Consumers

  • A card won’t be issued to anyone younger than 21 unless they complete an application with the signature of a co-signer over 21 or if they can either prove they have the financial means to repay the credit or have taken a financial literacy course.
  • The co-signer must approve raising the credit limit on the card.
  • Consumers younger than 21 will not get prescreened credit card offers unless they consent to receive them.
  • Issuers can’t give gifts to college students in return for completing a card application.

In general, there will be more disclosure on due dates, late penalties, and better explanation of how long it will take to pay off a balance with only the minimum payment each month. There is still no cap on interest rates.

THE OTHER SIDE

The AARP Bulletin Warns

"Despite being touted as a victory for consumers, financial experts said the bill could have unintended consequences as credit card companies look for ways to make up for potential lost revenue. Those measures could include more cards with annual fees and the loss of a grace period before interest accrues, which would affect even those consumers who pay off their balance each month."

Also, it might become harder to get credit or credit limits could be lowered. There could be new fees that don’t have to be disclosed under the new law, and without a cap, rates could triple in some cases. Leslie McFadden of Bankrate.com adds, "The rules won't apply for another year and a half, giving issuers time to strategize — and make adjustments — to offset any future profit losses."

What You Should Do

To stay on track, don’t change good consumer habits. Continue to read all statements, (including fine print) and dispute any charges you didn’t make.

Every year, check your free credit reports for fraud at www.annualcreditreport.com. Here are some tips from the MOSERS Money Matters workbook.

The ABCs of Getting Out of Debt

  • Analyze your situation by listing all your debts and interest rates.
  • Put the Brakes on spending.
  • Cancel or cut up most credit cards.
  • Deal with creditors to negotiate lower interest rates.
  • Eliminate the highest interest rate debt first.
  • Focus on your long-term goals by making short-term sacrifices: find additional money to put toward debt elimination by cutting back on expenses where possible.
  • Get out of debt once and for all!

Sources

Information on the legislation and its sponsors

The effects of the law on consumers:

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Investment Performance

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MOSERS Total Fund Return for 1 year ended 12/31/2013
(net of all expenses)

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