Credit Card Reform Question?

[GomerPyle]

Will the credit card reform act cover balances retroactively or only balances created after the February start date? Specifically, will a higher interest bearing balance that already exists have payments applied to it first or will this only apply to new balances created after February?

[Anonymous]

it should apply to the existing balance as well

[Anonymous]

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@GomerPyle wrote:
Will the credit card reform act cover balances retroactively or only balances created after the February start date? Specifically, will a higher interest bearing balance that already exists have payments applied to it first or will this only apply to new balances created after February?

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It applies to existing balances. However, only the part of the payment above the minimum payment amount has to be applied to the highest APR.

For example, say you have an account with part of the balance at 6% and part of the balance at 15%. The minimum payment is $100. If you send in a payment of $150, only $50 of that is required to be applied to the 15% APR balance. The first $100 is still applied to the 6% APR balance ...

Message Edited by Revike on 10-11-2009 07:47 PM

[creditwherecreditisdue]

Here ya go:

SEC. 104. APPLICATION OF CARD PAYMENTS.

Section 164 of the Truth in Lending Act (15 U.S.C. 1666c) is amended--

(1) by striking the section heading and all that follows through ‘Payments’ and inserting the following:

-‘Sec. 164. Prompt and fair crediting of payments

‘(a) In General- Payments’;

(2) by inserting ‘, by 5:00 p.m. on the date on which such payment is due,’ after ‘in readily identifiable form’;

(3) by striking ‘manner, location, and time’ and inserting ‘manner, and location’; and

(4) by adding at the end the following:

‘(b) Application of Payments-

‘(1) IN GENERAL- Upon receipt of a payment from a cardholder, the card issuer shall apply amounts in excess of the minimum payment amount first to the card balance bearing the highest rate of interest, and then to each successive balance bearing the next highest rate of interest, until the payment is exhausted.

‘(2) CLARIFICATION RELATING TO CERTAIN DEFERRED INTEREST ARRANGEMENTS- A creditor shall allocate the entire amount paid by the consumer in excess of the minimum payment amount to a balance on which interest is deferred during the last 2 billing cycles immediately preceding the expiration of the period during which interest is deferred.

‘(c) Changes by Card Issuer- If a card issuer makes a material change in the mailing address, office, or procedures for handling cardholder payments, and such change causes a material delay in the crediting of a cardholder payment made during the 60-day period following the date on which such change took effect, the card issuer may not impose any late fee or finance charge for a late payment on the credit card account to which such payment was credited.’.

[creditwherecreditisdue]

Revike has it exactly right. Section 164(b)(2) is there to keep you from being screwed at the end of a 0% APR/deferred interest deal. You still may have a problem if you mix balances on those accounts. Proceed with caution!

[Anonymous]

I just called citibank to clarify this - they've been literally hounding me, sending me e-mails and checks to use, etc., to transfer a balance onto their card.

There are two options:  0% for 6 months (which I am not taking because the new laws allow them to raise the rates at the end of special offer periods) and 1.99% for 16 months. 

The current interest rate on the card is 0% (prior offer) but will go up to 9.9% (or whatever??) starting March 1, 2010.

So basically I will have one balance at 1.99% and one at 9.9% (or whatever . . .).  According to existing terms they will apply all payments to the lower interest rate, so the 9.9% balance will just accrue interest until the other balance is paid off.

Anyway, first I get the India call center, and they have no idea of the new law.  I ask for a supervisor and she says she knows about the law, but they have not "determined" whether it will apply to existing credit card balances.  My guess is that their attorneys and lobbyists are busy looking at ways around any ambiguities in the new law - which does NOT state it applies to existing accounts that have balances with different APRs.

I have to decide by 12/20/09 whether to accept their offer.  The balance I want to transfer is currently at 16.9% but WellsFargo decided to hike it up to 19.9% (!!!!!). 

I'm not sure what to do here.  Anything's better than 20% but I really don't want the existing balance to accrue 9.9% (or whatever they increase it to) while I work at paying off the new balance . . .

Are we SURE it applies to existing accounts?

[creditwherecreditisdue]

Welcome to the forums!

The amount of any payment rendered that exceeds the minimum payment due must be applied to the balance carrying the highest APR first. There is no ambiguity about this matter and the CC companies are probably the last people to ask.

[Anonymous]

You're right.  They were trying to imply that the new law requiring payments to apply to the higher APR balance would NOT apply to existing accounts.  (The ambiguity being whether it applies to existing accounts/balances or only accounts we open after the law takes effect).

I think they know it WILL apply, but they're busy working on some sort of workaround so they aren't ready to concede.  Most likely they're plying some congressperp or have their attorneys on overtime figuring out a way to keep screwing with us.

[Anonymous]

The applicable section of the law is:

(1) IN GENERAL- Upon receipt of a payment from a cardholder, the card issuer shall apply amounts in excess of the minimum payment amount first to the card balance bearing the highest rate of interest, and then to each successive balance bearing the next highest rate of interest, until the payment is exhausted. 

There is no further restriction indicating that this rule applies any differently to existing balances than it does to future balances. Therefore, it appears that if you make a payment prior to February 22, that payment will be applied however the credit card company wants - meaning it will almost certainly be applied to the lowest APR balance first. If you make a payment on February 22 or later, and you pay more than the minimum, the amount in excess of the minimum will be applied to the highest APR balance.

Keep in mind that, until/unless the law is clarified further, the minimum payment percentage is still subject to change by your credit card company. So, if your minimum as of February 22 is 2% and you were planning to pay 5% each month, with the expectation that the extra 3% would go to the highest APR balance, and then the CCC raises your minimum to 5%, you will then see your entire payment applied to the low APR balance.

If Congress succeeds in moving up the implementation date (which I think is doubtful), replace February 22 with December 1 ...

Message Edited by Revike on 10-28-2009 01:43 PM

[creditwherecreditisdue]

The law is unambiguous so there's not a whole lot they'll be able to do - except raise the minimum payment...