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Obama to Sign Cardholders' Bill of Rights

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New rules take effect in 90 days - no need to wait till 2010.

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There's a simple solution to all the flapdoodle about rapacious credit card issuers: Pay your bill in full each month.

This avoids interest charges and builds a solid credit rating while using the bank's money interest free for about a month.

But this is America, land of the perpetual victim, where no one bothers to review a credit card's disclosure statement.

New credit card regulations take effect in July 2010. Representative Carolyn Maloney of New York has reintroduced the Credit Cardholders' Bill of Rights, which offers the same reforms and would become effective 90 days after President Obama signs the bill into law; the proposed plan could effect such issuers as MasterCard (MA), Visa (V) and Capital One (COF).

The changes, the most significant in about 30 years, affect how banks market and bill credit cards. Here's what you need to know:

  • Higher interest rates on a current balance will be permitted only under specific conditions such as the expiration of a promotional rate, late payment or a variable rate. Interest rates on new transactions can be increased only after 45 days' advance notice.

  • There will be no more universal default, nor raising interest rates based on a customer's payment history with utility companies or other credit issuers not affiliated with the bank issuing the credit card.

  • Payments will be due at least 21 days after the bill is mailed or delivered. Credit card issuers will no longer be able to set early morning deadlines for payments.

  • When a different interest rate is applied to various balances, payments will be applied first to the balance with the higher rate or divided proportionally.

  • Customers exceeding their credit limit will no longer be hit with a fee if a hold has been placed on their account. This routinely happens to customers who reserve a hotel or rental car when merchants place a hold on the account for the entire amount to be billed several weeks or months in the future.

  • Finance charges on a balance due will be computed on charges in the current cycle rather than going back to the previous billing cycle. Double-cycle billing hits customers who pay their balance in full one month, but not the next.

  • Terms will be disclosed in plain English.

The new rules sound great, but may have the unintended consequence of forcing those who manage their credit well to subsidize those who don't. This could mean higher interest rates for everyone.

Still, some people refuse to understand this bit of folk wisdom: If you haven't got it, don't spend it.

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