Along with income tax breaks and massive government spending, yesterday’s federal budget promises to “enhance consumer protection by limiting [credit card] business practices that are not beneficial to consumers.” Unfortunately, the budget is vague on what changes will be made.
Here are some of the promises:
1. clear summary information on application forms and contracts
2. clear and timely advance notice of changes in rates and fees
3. minimum grace period on new purchases made with a credit card
4. improved debt collection practices
The budget doesn’t contain much more detail than this. The third point about requiring a minimum grace period on new purchases could be interesting depending on what it means. The “grace period” is the time when no interest is charged on new purchases.
My credit card agreement tells me that I get a grace period only if I paid my bill in full last month and pay it in full this month. The grace period extends from an item’s date of purchase until the payment due date on my credit card bill. I guess not all credit card agreements are as reasonable as mine and the government feels the need to guarantee some minimum grace period.
Another interpretation of this minimum grace period promise is that it will apply to all purchases regardless of whether you pay your bill in full or not. If this is right, then even if you carry a balance, your purchases wouldn’t accrue interest for some minimum number of days. Don’t get too excited, though. In a quick poll of some friends, nobody thought that this was likely the right interpretation of the budget language.
So, we’re left with the vague feeling that something will be done to make credit cards better for consumers. I hope this is true. But, don’t look for big reductions in interest payments. If government rules were to cut too deeply into credit card profits, banks would cancel many people’s cards because the risk of default would be too great for the reduced reward.