The credit card reform signed into law a year ago by President Barack Obama is not only causing the industry to change but scaring some consumers straight. • Under the law, credit card statements must disclose how long it will take to pay off a balance if you make only the minimum payment. For Norma Kaplan of Baltimore County, it would take her 13 years to pay off the $9,000 balance on her card, and over that time she would pay about $4,200 in interest. That has inspired her to pay more.
"It made me feel terrible," the 76-year-old widow says. The statements, she says, "should open up a lot of eyes."
The overhaul of the credit card industry includes a range of reforms that give you more time to pay, limit when card issuers can raise rates and cap up-front fees that used to nearly wipe out subprime borrowers' credit limits. The bulk of the changes took effect in February.
And it's not over yet. The Federal Reserve is expected to release final rules this month to prevent unreasonable fees by card companies. The Fed has proposed banning inactivity fees and prohibiting penalties that exceed the dollar amount involved. In other words, no $39 late fee on a $15 bill. Final rules will kick in Aug. 22.
But already, consumers and industry observers are forming opinions about the reform's impact. Some provisions don't go as far as consumers want, while others aren't quite as protective as they first appear. And other provisions are actually helping.
Among the positive changes: Consumers now get an extra week to pay a card bill, and they must be given a 45-day notice before a rate increase. And there's the revamped card statement, which must disclose what it takes to wipe out the debt in three years in addition to the disclosure about minimum payments.
These cold, hard numbers have motivated one-quarter of customers to start paying more than the minimum, according to a poll of about 2,000 consumers by the National Foundation for Credit Counseling.
Kaplan always paid more than the minimum, but she started adding an extra $65 toward her monthly bill. She is also paying off another card with a smaller balance. And she's trying not to use plastic.
Another recent survey of about 1,000 consumers by CreditCards.com found that three out of four cardholders say their accounts are "in better shape" than they were a year ago, before the overhaul. Some of them noted receiving lower rates and increased credit limits.
"The credit card industry has been forced to be more transparent, and its worst practices have been banished," says Daniel P. Ray, editor-in-chief of CreditCards.com.
Of course, not everyone is happy. One-quarter of respondents to the CreditCards.com survey said they were worse off and complained of higher rates, new annual fees and the addition of a fee for a paper statement. These unhappy consumers tended to be younger and less wealthy.
One of the biggest criticisms of the reform law is that it gave the card industry too much time to implement changes. Card issuers began raising rates and lowering limits before reforms took effect.
In response to that, the law as of August will require card issuers to review rate increases twice a year, going back to January 2009, to see if those higher rates are still warranted — although experts advise consumers not to pin their hopes on a change of heart from the card issuer.
John Slike, a retiree from Parkville, Md., said his rates on retail cards jumped to about 24 percent before reforms took effect. He said he's disappointed that the law didn't cap interest rates, though he added that other reforms in the law "were absolutely needed because the credit card companies were just running … over people."
Curtis Arnold, founder of CardRatings.com, said card issuers also added new fees in the past year. Some are freezing reward miles or points of customers who are late with payments and then making them pay up to $29 as a reinstatement fee to get rewards back, he said.
Then there are the reforms that don't offer as much protection as first thought.
For example, the law says issuers can't charge you a fee to pay by phone, unless you make a last-minute payment on the due date, Arnold said. But many of those paying by phone do so because the bill is due right then, he said.
"It's a huge loophole, and that gives them a right to assess a fee" as high as $29, he said.