Minimum Payments May Rise As Credit Card Companies Become Accountable

When you opened your latest credit card statement, you might have noticed it had a little chart listing the amount of time it will take to pay off your balance with minimum payments. This eye-opening announcement can be compared to the calorie counts on fast food menus.
"The intention of the law is to prompt more people to action if they are making the minimum payments," says GreenPath credit counselor Chris Dlugozima. "I mean, the math hasn't changed. It's just forcing the creditors to put a disclosure out there, kind of like the surgeon general's warning for credit cards."
While the change may motivate consumers to pay off larger amounts each month, it may also motivate lenders to require larger minimum payments.
"Wouldn't that make them look bad if all their statements say it will take you 27 years to pay it off?" says Dlugozima. "If they increase the payments, then it will take less time and they won't have to disclose this ridiculous length of time it will take for you to pay it off."
The change is part of last year's Credit Card Accountability, Responsibility and Disclosure Act, sections of which will officially kick in next week. In addition to prohibiting lenders from raising your interest rate suddenly and arbitrarily, the CARD Act also prevents companies from charging an over-limit fees, unless they are given permission from cardholders to do so.
"You have to opt in to their ability to let you go over the limit and if you do, they would charge the fee," says Dlugozima. "But really, for most consumers, why would they want to do something like that?"
Credit card companies will also be limited in the way they market to young people, who have long been a target audience, especially on college campuses.
"People under the age of 21 would have to either show an independent ability to pay or have a co-signer. And it moves marketing off-campus now, as opposed to somewhere between your dorm room and your classroom," says Adam Levin, the co-founder of Credit.com.
The CARD Act's provisions of meant to protect consumers, but experts say it is as important as ever to keep a watchful eye on one's finances, because the new law is hardly a bulletproof vest.
"2010 is the year of accountability. It's the year of accountability for the credit card companies and the banks when it comes to dealing with consumers, but it's also the year of accountability when it comes to consumers," says Levin. "We have to be aware, we have to read and we have to willing to assert ourselves, because if we're not willing to do that, then this law is not as relevant as it should be."