If 2009 was the year of hammering out credit card reform, 2010 will be the year consumers feel the effects of those changes.
The Credit Card Accountability, Responsibility and Disclosure Act goes into full effect Feb. 22, and with it come stronger consumer protections. Banks will no longer be able to raise interest rates during the first 12 months after opening an account -- or hike rates on pre-existing balances at all. Credit card payments, if exceeding the minimum, will be allocated to the highest-rate balances first. Monthly statements will become easier to understand and the ability to issue credit cards to college students will be severely restricted. (Read a more detailed outline of the new rules.)
But these new safeguards will come at a price. Although card issuers focused last year on making sure they'll be in compliance with the new law, now they will have to figure out how to make money given the changes in their business, says Dennis Moroney, a research director at financial-services research outfit TowerGroup. This "will be the year of transition for the banks," he says.
Here are other big changes consumers can expect from their credit-card issuers in 2010.
1. Punishing inactivity
Using your credit cards wisely used to mean keeping your balances low relative to your available credit, and locking your cards in a drawer was deemed smart. Today, the wise use of credit entails something entirely different: making sure those cards don't stay in the drawer for too long.As card issuers face growing restrictions in an economic environment that remains challenging, this year they will place an even stronger focus on inactive accounts, reducing credit limits, introducing inactivity fees or closing the accounts altogether, says Robert Hammer, the chief executive officer of R.K. Hammer, a bank card advisory firm.
Why? Inactive accounts are a losing proposition for card issuers: They're not making any money off you from interest payments or interchange fees, but they have to spend money on printing and mailing you things like account notifications and statements. More importantly, such accounts leave them open to the risk that you will lose your job, max out the card and leave the bank holding the bag.
To keep all your accounts active, Hammer recommends rotating your cards each month. (See "Why you need multiple credit cards.")
2. Looking beyond credit scores
Just a few years ago, the main factors in determining your credit card interest rate and credit limit were your credit score and payment history. Now, issuers take a lot more into account when evaluating their existing and prospective card holders' risk profiles.For example, living in an area with high unemployment or working in an industry where job security is volatile can prompt an issuer to reduce your credit limit or introduce an annual fee to your account, even if your credit and payment histories are spotless, says David Robertson, owner of the Nilson Report, which tracks credit-card industry trends. (For more, read "Can your lifestyle hurt your credit?")
"Six issuers control 80% of the market," he says. "They use very sophisticated programs and are able to slice and dice their portfolio in many ways."
That said, using sophisticated analytics may cut both ways. Issuers may become more lenient in their lending decisions with consumers who have only recently seen their credit hurt by the loss of a job or home.
"Joblessness took down a lot of people who were good, solidly middle-class, good-score customers," Robertson says. "The question will be, when this person gets a job again, will he return to their profile of an honest, trustworthy customer, but with a lower credit score?"
Continued: Chasing after parents of college students
