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Consumers approach credit law with caution

February 22, 2010 12:00:00 AM PST
A sweeping new credit card law took effect Monday, which will mean big changes for all your credit card bills. These changes could be beneficial, but some consumers are still cautious.Nearly everyone these days has a reason to dislike their bank or credit card company.

"I know that they solicited my daughter for credit cards when she wasn't even 18 years old," said Palmdale resident John Gonzalez.

"There was a time when I ran up my credit card debt, and then you're like 'Oh, my goodness,'" said Pasadena resident Cindy Robinson.

Of course consumers didn't have to take the credit cards and run up their debt, but people did. And banks, of course, took advantage by increasing interest rates to astronomical heights without warning.

They also issued a lot of cards to people who could not afford it. The hangover from that binge has now led to the new credit card law which went into effect Monday.

Credit card holders are now protected from unannounced interest rate hikes. Credit card companies will now have to give cardholders a 45 day notice before raising rates. They will not be able to raise rates at all in the first year unless an introductory rate is ending.

Most consumers are happy with the new law.

"I agree with it. I think it is great because I think the banks are trying to take advantage of people when the economy is bad and people are losing their jobs," said Robinson. "They should be trying to help people and not make it harder for people who are struggling."

Many consumer groups, however, are not happy because the new law puts no limit on the interest rates that the banks can charge.

"Interest rates will be a little bit higher across the board. It will be harder for people to get cards," said Nessa Feddis, American Bankers Association. "Limits will be lower. Beyond that card companies are looking at annual fees."

Pasadena resident Erik Ivins says he expects to be hit with new fees, but says that's OK.

"They have to add fees because if they want to continue to make a profit they will not be able to squeeze these people who don't understand what is going on," said Ivins. "So they are going to raise fees on people like me because naturally they've got to make a profit. They don't like people like me because I don't run a balance."

Another change you will see is on your monthly statement. A new line has been added that will tell you how long it will take you to pay off your balance if you make only the minimum payment. In many cases it will take years.

"They are in the credit card business to make money off of us. I understand, but you just have to be smart about it," said Burbank resident Paul Havlicek. "You have to pay your bills on time so you don't get any extra charges."

Under the new law, credit card companies will not be able to: move your payment due date, charge over-the- limit fees unless you agree, increase your interest rate without 45 days notice, and issue cards to anyone under 21 unless applicant has a co-signer.

However, some of the things credit card companies can still do are: charge you new fees for paper statements, increase fees for overseas transactions, charge new fees for not using a card, and be more selective with applicants.

Consumer groups say the law is a good first step in shielding customers from the more outrageous tactics of the credit card companies, but those companies still have some tools left.

Reading the fine print is very important, because these changes are expected to cost banks $50 billion over the next five years. This law still allows loans and cards with potentially crushing terms.

Gene Gleeson contributed to this report.