Elastic Credit with New Credit Card Laws

Credit cards have long been a source for quick and easy cash when needed—making this type of credit very elastic. Credit cards are getting a facelift with the new credit card laws, which makes credit card purchases and cash advances more elastic than ever before.

One way that credit cards are becoming more appealing to cardholders is due to the new credit card laws passed by the Federal Reserve. The new credit card laws help to protect consumers from being charged high late and penalty fees by card issuers. The changes are due to take effect on August 22, 2010 and are the closing act to the Credit Card Accountability and Disclosure Act introduced by Congress in 2009.

New Credit Card Fee Limits

Credit card issuers can no longer set and charge their own rate fees. The new credit card laws limit late payment fees to a maximum amount of $25. The only exception is if a cardholder has made a late payment in the previous seven months, then the late fee limit does not apply. The penalties charged by the card issuer also have to be proportionate to the minimum payment due. For example, if the minimum payment due is $15 and the cardholder makes a late payment, the card issuer can only charge a late fee of $15. Cardholders who have credit cards that they do not use also do not have to worry about being charged fees for inactivity because inactivity fees are eliminated with the new law.

What the 2010 Credit Reform Means for Small Business

Small businesses are a special entity. These businesses do not have the funds that big businesses have access to, but still require money to operate on a daily basis. Since small business owners tend to separate their personal finances from those of their business, many bridge the time gap between when they have to pay for business expenses and when they receive customer payments by using small business credit cards.

As part of his effort to combat the financial woes of the nation, President Obama enacted a credit card reform bill in an order to protect consumers from changes to the terms and conditions by the credit card issuers. The bill, which goes into effect in 2010, protects consumers from having their credit card accounts closed—even if their accounts are in good standing—or from interest rate hikes without ample notice. It requires credit card issuers to notify cardholders of interest rate changes 30-days prior, account closures 45-days prior and to send bills at least 21 days prior to the due date. As a credit cardholder, you may sigh in relief because some of the conditions stated in the bill will benefit you in the long.

If you’re the proud owner of a small business credit card, however, don’t sigh too fast. The bill does not extend to protecting small business credit cardholders.

So what does the credit card reform mean for small business credit cards?

Account closures
Credit card issuers of small business cards will continue to have the right to close a small business account without the same amount of notice as consumer cards. This is true even if you have been a model small business cardholder. So if you rely on your credit card to cover small business expenses, your access to this money can disappear in a matter of days. This greatly handicaps small businesses because the owners may no longer have the capital to keep their business doors open. This adds to the number of businesses already having to close because of the bad economy.

Interest rate hikes
Small business credit card exclusion from the reform means interest rates can be increased at any time and without enough notification for the business owner to make other arrangements. These rate hikes can mean the difference between being able to afford making the monthly payment and not being able to afford it. Again, if the line of credit for a small business is cut off because of unfavorable terms, then it may be the demise of the business.


Terms and conditions changes
While the reform protects consumer cards against terms and conditions changes that can adversely affect the cardholder, small business card issuers can continue to change conditions at will. This may mean that small business cardholders receive notice that the issuer is closing their account only a few days before the closure or before a rate increase is instituted. While the reform bill also prohibits card issuers from increasing rates during the first year, this does not apply to business cards.

With millions of small businesses across the nation contributing to the American economy, how is it going to resolve the economic turmoil if these businesses have to close because of unfavorable credit terms and conditions? In short, the new credit card reform does not protect small business credit cardholders. It leaves these cardholders vulnerable to the credit card issuers or forces them to use their personal credit cards to cover business expenses. In essence, it may change the way small businesses do business and have an effect on whether or not they can do business at all.

Credit Card Changes Are Coming (But Not Until 2010)

We are a little over half-way through the first month of the New Year, which I can't believe. New years usually bring resolutions on how people are going to change their lives this year. By now, people have usually forgotten what their resolution is and they have returned to their old ways. When it comes to your credit card spending, I suggest you keep your resolution this year because there are changes coming.

The Federal Reserve, the Office of Thrift Supervision, and the National Credit Union Administration have set new credit card issuer regulations that prohibit what they deem "unfair acts." While these regulations don't take effect until July of 2010, now is your chance to get your credit card "situations" under control. Consider it practice for when it'll really benefit you--and your credit.

New regulations

• Prohibits lenders from raising the interest rate on your credit balances, unless you make a payment late. Translates to: make your payments on time!


• Credit card issuers cannot charge a late fee, if the credit card statement is not sent within a reasonable amount of time (must be received by the borower about 21 days prior to the due date)--allowing the borrower to make the payment on time. Translates to: make your payments on time!


• Restricts the way that lenders can apply payments. They can't apply payments to your account in a way that would cause the balance to earn a higher interest rate. Translates to: make your payments on time!

What you can do to take control of your credit

• Sign-up for bill pay. Most banks offer free bill pay with your checking account. You can schedule your bill to be paid on whatever date you want, so sit down and schedule the payment to be paid on or before your credit card due date. This way, the credit issuer won't be able to raise your interest rate because you absent-mindedly forgot to make a payment one month.


• Set-up automatic payments. You can also provide the card issuer with permission to deduct the minimum payment (or another payment amount) from your checking account each month. Since it puts the onus on the credit issuer to withdraw the payment for you, there is little chance it'll get paid late. And if it does, it's their fault. Don't feel comfortable with this. There's still another option. Most credit card companies allow you to schedule future payments on their own website.


• Only charge what you can afford to pay. The absolute best way to get your spending and credit card debt under control is to only charge an amount you can afford to pay off the following month when the bill comes. No balance means no issues.

You shouldn't need an excuse to get your credit under control, but government regulations are coming that you give the opportunity you may need to do just that.