Managing Credit: Your Statement
BOSTON (CBS) – April is Financial Literacy Month and last week we talked about kids and cash. This week I thought we could spend some time on the grownups discussing money skills. Managing your credit is a learned money skill.
The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act has been in effect over two years now. It has ended unfair rate hikes and hidden fees by credit card companies. Some of the mandated changes appear on your monthly statement.
But do you review your statement each month? There is a column, PAYMENT INFORMATION.
It has your balance, minimum payment due and due date. Now it also tells you what your late fee will be and gives you a warning about paying only the minimum each month.
If you are looking for the interest rate they are charging you have to look on the last page of the statement and there it is along with your year to date totals for fees and interest charged.
The credit card companies can still raise your interest rate, but they must give you a 45-day notice and if you apply for a new card you do lock in that rate for a year.
What I like best is the shock and awe factor; there it is in print how long it will take you to pay off your balance if you only pay the minimum each month. And then it adds up the interest and lets you know what you will actually be paying. Of course, those numbers will only work if you never charge another thing on that card.
Here is an example a listener sent me, her balance is $2100, interest rate is 11.24% which is good, the minimum payment is $25 and in 10 years she will have it paid off and will have paid $1266 in interest.
The next example the card company provided is if she pays it off in 36 months she will pay $69 a month, again not charging anything else, and when it’s paid off will have paid $380 in interest.
So is this a good information to see it every month or do consumers ignore it on their statements?
The National Foundation for Credit Counseling conducted a survey on their website and 52% of the responders said they were paying as much each month as they could, 27 % were inspired to pay more, 12% were inspired to call the 800 number for credit counseling which is now on your statement as well. The last 9% pay off their balance each month.
One more thing: Key Elements of the Credit CARD Act of 2009
Bans Unfair Rate Increases:
- Bans rate increases on existing balances due to “universal default” which was if you were late on a different card or a utility bill the credit card company could raise your rate. And it restricts retroactive rate increases due to late payment.
- First Year Protection: Contract terms must be clearly spelled out and stable for the entirety of the first year. Firms may continue to offer promotional rates with new accounts or during the life of an account, but these rates must be clearly disclosed and last at least 6 months.
Bans Unfair Fee Traps:
- Ends Late Fee Traps: Credit card companies will have to give card holders a reasonable time to pay the monthly bill – at least 21 calendar days from time of mailing. The act also ends late fee traps such as weekend deadlines, due dates that change each month, and deadlines that fall in the middle of the day.
- Enforces Fair Interest Calculation: Credit card companies will be required to apply excess payments to the highest interest balance first, as consumers expect them to do. The act also ends the confusing and unfair practice by which issuers use the balance in a previous month to calculate interest charges on the current month, so called “double-cycle” billing.
- Requires Opt-In to Over-Limit Fees: Consumers will find it easier to avoid over-limit fees because institutions will have to obtain a consumer’s permission to process transactions that would place the account over the limit.
- Restrains Unfair Sub-Prime Fees: Fees on subprime, low-limit credit cards will be substantially restricted.
- Limits Fees on Gift and Stored Value Cards: The act enhances disclosure on fees for gift and stored value cards and restricts inactivity fees unless the card has been inactive for at least 12 months.
Plain Sight /Plain Language Disclosures: Credit card contract terms will be disclosed in language that consumers can see and understand so they can avoid unnecessary costs and manage their finances.
- Plain Language in Plain Sight: Creditors will give consumers clear disclosures of account terms before consumers open an account, and clear statements of the activity on consumers’ accounts afterwards. For example, pre-opening disclosures will highlight fees consumers may be charged and periodic statements will conspicuously display fees they have paid in the current month and the year to date as well as the reasons for those fees. These disclosures will help consumers make informed choices about using the right financial products and managing their own financial needs. Model disclosures will be updated regularly based on reviews of the market, empirical research, and testing with consumers to ensure that disclosures remain clear, useful, and relevant.
- Real Information about the Financial Consequences of Decisions: Issuers will be required to show the consequences to consumers of their credit decisions.
- Issuers will need to display on periodic statements how long it would take to pay off the existing balance – and the total interest cost – if the consumer paid only the minimum due.
- Issuers will also have to display the payment amount and total interest cost to pay off the existing balance in 36 months.
Accountability: The act will help ensure accountability from both credit card issuers and regulators who are responsible for preventing unfair practices and enforcing protections.
- Public posting of credit card contracts: Today credit card contracts are usually available only in hard copy and not in plain language. Now issuers will be required to make contracts available on the Internet in a usable format. Regulators and consumer advocates will be better able to monitor changes in credit card terms and evaluate whether current disclosures and protections are adequate.
- Holds regulators accountable to enforce the law: Regulators will be required to report annually to the Congress on their enforcement of credit card protections
- Holds regulators accountable to keep protections current:
- Regulators will be required to request public input on trends in the credit card market and potential consumer protection issues on a biennial basis to determine what new regulations or disclosures might be needed.
- Regulators will be required either to update the applicable rules, or to publish findings if they deem further regulation unnecessary.
- Increases penalties: Card issuers that violate these new restrictions will face significantly higher penalties than under current law, which should make violations less likely in the first place.
Cleans Up Credit Card Practices For Young People At Universities: The act contains new protections for college students and young adults. Anyone under 21 must have proof of adequate income or a co-signer if they want a card. Before kids were getting cards and not telling mom and dad about them and only paying off the minimum each month. Also card issuers and universities must disclose agreements with respect to the marketing or distribution of credit cards to students.