Credit card reform falling into place

In May of 2009, President Obama signed the Credit Card Accountability, Responsibility and Disclosure (CARD) Act.

The law was meant to protect consumers from some of the worst practices in the credit card industry. Most provisions of this law have been phased in over the past year and the last provisions go into effect next month.

Jim Hedemark, Executive Director of the Rhode Island Jump$tart Coalition , joined The Rhode Show to talk about the changes.

There are a lot of new regulations. Which are most important to consumers?

The law did bring about many changes to the credit card industry and the easiest way to find out about these new consumer protections is by going to www.federalreserve.gov/creditcard . You can learn about your offer, use a pay-it-off calculator, and explore other informational features.

One of the most useful financial education tools that will benefit consumers is the requirement for your credit card statement to clearly show your current balance and how long it will take to pay it off. Your statement will compare the total payment if you only pay the minimum vs. the total amount if you pay off the card in three years.

For example, suppose you owe $1,784.53 and your interest rate is 16.99%--your bill might look like this sample (see: “Understand Your Statement” link at: www.federalreserve.gov/creditcard

If you make no additional charges using this card and each month you pay. . . . You will pay off the balance shown on this statement in about. . . . And you will end up paying an estimated total of. . . Only the minimum payment 10 years $3,284 $62 3 years $2,232
(Savings = $1,052)

Consumers can easily compare the cost of paying the minimum in contrast to the savings they’ll realize by paying more than the minimum. This is one of the financial literacy principles that we have all been working on to help consumers not only understand, but act on. In this example, saving over $1,000 should be a huge incentive to pay within three years.

What changes affect college students?

In order to open a credit card account, consumers younger than 21 must show that they can make payments because they have adequate income or they must have a co-signer. We anticipate that many young adults will ask their parents to co-sign their credit card application. This may serve as a teachable moment, or in some cases many teachable moments. It’s important for co-signers to understand that they ultimately are responsible for maintaining the account since both the signer and co-signer’s credit history will be affected.

Consumers under 21 can open a secured card, which involves a security deposit that serves as the “ability to pay.” This is different than a credit card in that the consumer pays up front, then can use the secured card based on the deposit. This can be a good way for a young person to begin to learn about the bill paying process.

In addition, it may be important to tell viewers that if a person under 21 already has an active credit card, it will not be taken away. The requirement to be 21 years old or financially independent only affects new accounts.

For more information about the Rhode Island Jump$tart Coalition visit www.rijumpstart.org