Transcript Personal & Family Financial Capabilities

How the Fed’s New Rules
Will Impact Consumers
Jeanne M. Hogarth
Division of Consumer & Community Affairs
Federal Reserve Board
The analysis and conclusions set forth in this presentation represent
the work of the authors and do not indicate concurrence of the Federal
Reserve Board, the Federal Reserve Banks, or their staff. Mention or
display of a trademark, proprietary product, or firm in the presentation
by the authors does not constitute an endorsement or criticism by the
Federal Reserve System and does not imply approval to the exclusion
of other suitable products or firms.
How the CARD Act
affects you
Add one point if you have. . .
A child under 21
Paid a late fee for missing a 10 AM
payment deadline
No idea how long it will take to pay
off your card with only minimum
payments
Received your bill only 2 weeks
before it was due
How the CARD Act
affects you
Add one point if you have. . .
Had the interest rate go up without
notice
Had the interest rate go up in the
first year you had the card
Paid a fee for paying your bill
Received a T-shirt or mug for
applying for a card
How the CARD Act
affects you
Add one point if you have. . .
Been charged an over-the-limit fee
that was more than the amount you
went over the limit
Had a gift card expire before you
could use it
Lost value on a gift card due to
dormancy or usage fees
Consumers told us . . .
Who has the time to
sit down and listen
or read everything?
Or if you have a
video, really, who
has the time to sit
down and watch
[it]? I think the best
information is wordof-mouth
New law and rules
• New features
– Rate & fee changes
– Payments
– Opt-in for going over
limit
– Cards for those under 21
• New disclosures
–
–
–
–
Solicitations
Account opening
Monthly bill
Change in terms
Rate & fee changes:
advance notice
• 45 day advance notice
– Interest rate, fees, other significant
change in terms
• You can cancel and avoid fee
increase
– Need to get another card
• NO 45 day notice if
– Variable rate
– Introductory rate expires
– Don’t keep up with workout
agreement
Rate & fee changes:
first year
No rate increase allowed for first
12 months UNLESS
Variable rate
Intro rate expires
More than 60 days late paying
Don’t keep up with workout
agreement
Rate & fee changes:
increased rate applies only to
new charges
• Old rate applies to existing
balances UNLESS
Variable rate
Intro rate expires
More than 60 days late paying
Don’t keep up with workout
agreement
– Rate reduced under SCRA and
SCRA no longer applies to you
–
–
–
–
• Limits on universal default
Rate & fee changes:
“cure” for penalty rates
IF you trigger a penalty rate
AND
IF you make at least minimum
payments on time for 6
consecutive months
THEN your rate should
automatically go back down to
the “regular” rate for your card
Rate & fee changes:
limits on high-fee cards
Fees limited to 25% of initial
credit limit
$300 Credit limit  $75
maximum fee
Does NOT apply to late fees
and penalty fees
Rate & fee changes:
limits on fees
“Reasonable & proportional”
Late fee of $25 or $35
Late fee tied to minimum
payment
OTL fee tied to amount over
the limit
No inactivity fees
Over-the-limit fees
Opt-in for going over
the limit
One fee per cycle
Not triggered by other
fees or interest
In some cases, OTL fee
limited to 3 billing cycles
Payments: time to pay
Mail or deliver bill 21 days
before it’s due
Due date is same each month
(e.g. 15th or last day of month)
Payment cut-off time no earlier
than 5 PM
If due date is weekend or
holiday, payment is due next
business day
Payments: apply to high
interest first
Apply payment to highest
interest first (e.g. cash
advances, then purchases)
UNLESS you have a deferred
interest charge (“no interest
till March 2012”)
Payments
Double
Cycle
(twocycle)
Billing
Payments: how long to pay off
Bill will show current balance with
minimum payments & pay in 3
years
Example, $3,000 balance at 14.4%
Minimum payment is $60
If you make no
You will pay off the
additional charges using balance shown on
this card and each
this statement in
month you pay. . . .
about. . . .
Only the minimum
18 years
payment
$104
3 years
And you will end up
paying an estimated
total of. . .
$6,537
$3,713
(Savings = $2,824)
Credit cards & minors
Anyone under 21
needs:
 cosigner or
proof of ability to pay
Cosigner must agree
in writing to credit
limit increase
Consumers under 21
can sign up for a
secured card
Students and credit cards
• No soliciting
– On campus
– Near campus
• 1,000 feet
– At university event
• Ads use words, pictures,
symbols of university
• No ”tangible item”
– Intro rate is OK
Disclosures at 4 key
points
Solicitations
Account
opening
Monthly bill
Change in
terms
Solicitations
new
disclosure
box
Account-opening
 Key terms presented in a summary table
similar to solicitations
Account
opening
sample
New
monthly
statement
New
monthly
statement
New
monthly
statement
Payments: how long to pay off
Bill will show current balance with
minimum payments & pay in 3
years
Example, $3,000 balance at 14.4%
Minimum payment is $60
If you make no
You will pay off the
additional charges using balance shown on
this card and each
this statement in
month you pay. . . .
about. . . .
Only the minimum
18 years
payment
$104
3 years
And you will end up
paying an estimated
total of. . .
$6,537
$3,713
(Savings = $2,824)
$3,000
14.4%
$3,000
14.4%
3
60
Minimum math
Month
Payment Interest
Principal
Start
Balance
$3000
1
60.00
36.00
24.00
2976.00
2
59.52
35.71
23.81
2952.19
12
54.93
32.96
21.97
2724.34
24
49.88
29.93
19.95
2474.01
36
45.30
27.18
18.12
2246.68
60
37.35
22.41
14.94
1852.77
Amortizing math
Month
Payment Interest
Principal
Start
Balance
$3000
1
60.00
36.00
24.00
2976.00
2
60.00
35.71
24.29
2951.71
12
60.00
32.63
27.37
2692.21
24
60.00
28.42
31.58
2337.05
36
60.00
23.56
36.44
1927.24
60
60.00
11.49
48.51
908.71
Payment profiles
3500.00
3000.00
Balance w/ min pay
Balance w/ level pay
2500.00
Balance for 3 yr payoff
2000.00
1500.00
1000.00
0.00
1
6
11
16
21
26
31
36
41
46
51
56
61
66
71
76
81
86
91
96
101
106
111
116
121
126
131
136
141
146
151
156
161
166
171
176
500.00
Payment decision
If you make no
You will pay off the
additional charges using balance shown on
this card and each
this statement in
month you pay. . . .
about. . . .
Only the minimum
18 years
payment
$104
3 years
And you will end up
paying an estimated
total of. . .
$6,537
$3,713
(Savings = $2,824)
Make minimum payment and
save/invest the rest?
Make level payment and save/invest
the rest?
Make ‘3-year’ payment then start
saving?
Summary
of fees
and
interest
New
monthly
statement
Gift cards
Excludes reloadable
account substitute cards
Excludes award or
promotional cards
“card with purchase”
Gift cards
Limits on dormancy,
inactivity, and service
fees
Minimum of 12 months
5-year minimum
expiration date
Effective Jan 31, 2011
for cards produced
before 4/1/10
Overdrafts
Opt-in for
ATM withdrawals
Point-of-sale debits
May be automatic
for
Checks
Scheduled payments
Cost of overdraft options
Good account
management
Link to savings account
$0
Line of credit
$15 annual fee +
12% APR
$3 cash advance
fee + 18% APR
Link to cash advance on
credit card
$5 transfer fee
Overdraft services (opt in) $20 - $30
Bounced check
$40 to $60 (bank
+ merchant fee)
Different consumer
protections
Type of card
Liability limit
Credit
$50
Debit
$50, $500, ∞
Payroll
$50, $500, ∞
Gift
$ on card
Different consumer
protections
Type of card Bill disputes
Credit
Withhold payment
Debit
Money is already
out of your account
Money is already
out of your account
Payroll
Gift
Money is already
out of your account
Bureau of Consumer
Financial Protection
Responsible for nearly all major
financial consumer protection
laws
Units
Research
Community Affairs
Consumer Complaints
Bureau of Consumer
Financial Protection
Offices
Financial Education
Fair Lending & Equal Opportunity
Service Member Affairs
Financial Protection for Older
Americans
Timing
Stay tuned!
Thank you!
Any questions?