New Rules Governing Credit Terms Go Into Effect This Month

BREMERTON —

They call or drop by her credit-counseling office in a steady stream.

They are distraught. Collectors are dogging them, and they desperately need help to consolidate and pay off their bills.

While their problems might have lots of causes — maybe they’re suffering under a subprime home loan — credit-card debt is often part of the mix, according to Barbara Mascarin, operations director for the nonprofit American Financial Solutions.

She is hoping new credit-card consumer protection rules help. They were signed by President Obama in May and go into effect this month through February 2010.

“I think that people maybe will not get into so much trouble,” Mascarin said. Her staff of about two dozen often set up debt management plans for clients, and within three to five years, many clients are back on track.

Under the new protections, consumers will have to be more than 60 days behind on payments before credit-card companies can raise interest rates on balances. And, credit-card companies will have to revert to previous, lower rates if consumers pay minimum balances on time for six months.

Credit-card companies also have to give 45 days’ notice and an explanation to consumers before they change their rates.

The rules also will make it much harder for credit-card companies to issue cards to people younger than 21. Soon, applicants younger than 21 will have to prove they have the ability to pay off debt, or a parent will need to co-sign.

“If you’re a student, it will be hard to get a credit card,” said Mascarin, whose own daughter was heavily solicited by credit-card companies while a student at the University of Washington. She later canceled cards she realized she didn’t need or want.

Credit-card companies are changing terms on millions of credit card accounts before the law takes effect, according to the Los Angeles Times. At least two are changing fixed rates to variable rates.

“The credit card companies are trying to find their way around it,” Mascarin said.

But they’ve also taken steps to help firms like American Financial Solutions assist more people. This spring, the nation’s 10 largest credit-card companies agreed to provide more affordable debt management plans and hardship programs for consumers.

“These new concessions are really making a big difference,” she said.

Those who come to her office have an average card debt of $13,000. Usually it’s some big life change — a job loss, divorce or death of a spouse — that has caused them to pull out the cards and start using them for daily expenses like groceries. One man that American Financial Solutions helped had gone through a divorce and charged up $90,000 in card debt, she said.

“One of the biggest things is medical problems,” Mascarin said.

On average, they have eight credit cards, including some from the big companies and a smattering of retail cards.

The immediate advice they get is to put down the cards.

Her firm works with credit-card companies to lower rates, cut penalty fees and buy time for the consumer neck-deep in debt.

Not everyone can be helped. For those who can’t, the next step is bankruptcy. That path has become so common in this recession that American Financial Solutions began pre-bankruptcy counseling for clients in February. About 70 troubled clients get it a month.

But those who can be helped get a heavy dose of financial literacy, through counseling, classes and learning materials. The Bremerton-based company currently has 25,000 clients around Puget Sound and throughout the nation.

Mascarin wishes financial literacy were taught in schools, long before her clients got to this point.

“If you have to take a class on your state history, good grief, you should have to take a class in managing your money,” she said.

But if that’s not going to happen right away, it’s up to parents to teach the kids, she said. If you do a family budget, show them how. Show them how you balance your checking account. And explain credit cards to them, and how to use them.

But for those who cards helped get them into trouble, there may be help.

“It’s not the end of the world,” Mascarin said.


Source