After receiving over 60,000 comments, federal banking regulators passed new rules late last year to curb harmful credit card industry practices. These new rules go into effect in 2010 and could provide relief to many debt-burdened consumers. Here are those practices, how the new regulations address them and what you need to know about these new rules.

1. Late Payments

Some credit card companies went to extraordinary lengths to cause cardholder payments to be late. For example, some companies set the date to August 5, but also set the cutoff time to 1:00 pm so that if they received the payment on August 5 at 1:05 pm, they could consider the payment late. Some companies mailed statements out to their cardholders just days before the payment due date so cardholders wouldn’t have enough time to mail in a payment. As soon as one of these tactics worked, the credit card company would slap the cardholder with a $35 late fee and hike their APR to the default interest rate. People saw their interest rates go from a reasonable 9.99 percent to as high as 39.99 percent overnight just because of these and similar tricks of the credit card trade.

The new rules state that credit card companies cannot consider a payment late for any reason “unless consumers have been provided a reasonable amount of time to make the payment.” They also state that credit companies can comply with this requirement by “adopting reasonable procedures designed to ensure that periodic statements are mailed or delivered at least 21 days before the payment due date.” However, credit card companies cannot set cutoff times earlier than 5 pm and if creditors set due dates that coincide with dates on which the US Postal Service does not deliver mail, the creditor must accept the payment as on-time if they receive it on the following business day.

This rule mostly impacts cardholders who often pay their bill on the due date instead of a little early. If you fall into this category, then you will want to pay close attention to the postmarked date on your credit card statements to make sure they were sent at least 21 days before the due date. Of course, you should still strive to make your payments on time, but you should also insist that credit card companies consider on-time payments as being on time. Furthermore, these rules do not go into effect until 2010, so be on the lookout for an increase in late-payment-inducing tricks during 2009.

2. Allocation of Payments

Did you know that your credit card account likely has more than one interest rate? Your statement only shows one balance, but the credit card companies divide your balance into different types of charges, such as balance transfers, purchases and cash advances.

Here’s an example: They lure you with a zero or low percent balance transfer for several months. After you get comfortable with your card, you charge a purchase or two and make all your payments on time. However, purchases are assessed an 18 percent APR, so that portion of your balance is costing you the most — and the credit card companies know it and are counting on it. So, when you send in your payment, they apply all of your payment to the zero or low percent portion of your balance and let the higher interest portion sit there untouched, racking up interest charges until all of the balance transfer portion of the balance is paid off (and this could take a long time because balance transfers are typically larger than purchases because they consist of multiple, previous purchases). Essentially, the credit card companies were rigging their payment system to maximize its profits — all at the expense of your financial wellbeing.

The new rules state that the amount paid above the minimum monthly payment must be distributed across the different portions of the balance, not just to the lowest interest portion. This reduces the amount of interest charges cardholders pay by reducing higher-interest portions sooner. It may also reduce the amount of time it takes to pay off balances.

This rule will only affect cardholders who pay more than the minimum monthly payment. If you only make the minimum monthly payment, then you will still likely end up taking years, possibly decades, to pay off your balances. However, if you adopt a policy of always paying more than the minimum, then this new rule will directly benefit you. Of course, paying more than the minimum is always a good idea, so don’t wait until 2010 to start.

3. Universal Default

Universal default is one of the most controversial practices of the credit card industry. Universal default is when Bank A raises your credit card account’s APR when you are late paying Bank B, even if you’re not or have never been late paying Bank A. The practice gets more interesting when Bank A gives itself the right, through contractual disclosures, to increase your APR for any event impacting your credit worthiness. So, if your credit score lowers by one point, say “Goodbye” to your low, introductory APR. To make matters worse, this APR increase will be applied to your entire balance, not just on new purchases. So, that new pair of shoes you bought at 9.99 percent APR is now costing you 29.99 percent.

The new rules require credit card companies “to disclose at account opening the rates that will apply to the account” and prohibit increases unless “expressly permitted.” Credit card companies can increase interest rates for new transactions as long as they provide 45 days advanced notice of the new rate. Variable rates can increase when based on an index that increases (for example, if you have a variable rate that is prime plus two percent, and the prime rate increase one percent, then your APR will increase with it). Credit card companies can increase an account’s interest rate when the cardholder is “more than 30 days delinquent.”

This new rule impacts cardholders who make payments on time because, from what the rule says, if a cardholder is more than 30 days late in paying, all bets are off. So, as long as you pay on time and don’t open an account in which the credit card company discloses every possible interest rate to give itself permission to charge whatever APR it wants, you should benefit from this new rule. You should also pay close attention to notices from your credit card company and keep in mind that this new rule does not take effect until 2010, giving the credit card industry all of 2009 to hike interest rates for whatever reasons they can dream up.

4. Two-Cycle Billing

Interest rate charges are based on the average daily balance on the account for the billing period (one month). You carry a balance everyday and the balance might be different on some days. The amount of interest the credit card company charges is not based on the ending balance for the month, but the average of every day’s ending balance.

So, if you charge $5000 at the first of the month and pay off $4999 on the 15th, the company takes your daily balances and divides them by the number of days in that month and then multiplies it by the applicable APR. In this case, your daily average balance would be $2,333.87 and your finance charge on a 15% APR account would be $350.08. Now, imagine that you paid off that extra $1 on the first of the following month. You would think that you should owe nothing on the next month’s bill, right? Wrong. You’d get a bill for $175.04 because the credit card company charges interest on your daily average balance for 60 days, not 30 days. It is essentially reaching back into the past to drum-up more interest charges (the only industry that can legally travel time, at least until 2010). This is two-cycle (or double-cycle) billing.

The new rule expressly prohibits credit card companies from reaching back into previous billing cycles to calculate interest charges. Period. Gone… and good riddance!

5. High Fees on Low Limit Accounts

You may have seen the credit card advertisements claiming that you can open an account with a credit limit of “up to” $5000. The operative term is “up to” because the credit card company will issue you a credit limit based on your credit rating and income and often issues much lower credit limits than the “up to” amount. But what happens when the credit limit is a lot lower — I mean A LOT lower — than the advertised “up to” amount?

College students and subprime consumers (those with low credit scores) often found that the “up to” account they applied for came back with credit limits in the low hundreds, not thousands. To make things worse, the credit card company charged an account opening fee that swallowed up a large portion of the issued credit limit on the account. So, all the cardholder was getting was just a little more credit than he or she needed to pay for opening the account (is your head spinning yet?) and sometimes ended up charging a purchase (not knowing about the large setup fee already charged to the account) that triggered over-limit penalties — causing the cardholder to incur more debt than justified.

The new rules place restrictions on how much credit card companies can charge for these account setup or membership fees and requires that they spread out these fees over at least a six-month period if these fees consume more than 25 percent of the account’s credit limit.

What now?

It’s 2009 and these rules don’t take effect until 2010. So, credit card companies have one year to wreck havoc on consumers (not that they haven’t been doing so over the past 30 years). So, you’ll need to keep your eyes open for an increase in tricks designed to plummet you into more debt and make a habit of insisting that these companies abide by the new rules of the game once they kick into action in 2010. However, there are three universal points to live by to get the most out of these new rules: always read your cardholder agreement and notices, always pay on time and always pay more (much more) than the minimum monthly payment.

Time to Get Out of Debt

These new rules may also have other side effects. Some credit card companies are already lowering credit limits and increasing the minimum monthly payment amount from around two percent of the outstanding balance to as much as five percent. So, some cardholders may see their payments double and this could cause a lot of problems for cash-strapped consumers. This just means that there is no better time than now to start getting yourself out of debt and out from under the thumbs of the credit card banks.

There are a few ways to get out of debt. Bankruptcy is often an obvious option for people financially pinned against the wall, but the 2005 bankruptcy law revision made it more difficult for many consumers. Consumer credit counseling is another option that’s popular, but it involves more organizational relief than financial relief. Debt settlement is growing in popularity because it provides financial relief through negotiated reduction in the amount owed, but people looking to enroll with a debt settlement company should make sure they are dealing with a well-established, reputable company. Alternatively, some people trying to get out of debt can negotiate their own debt-reduction settlements with the help of do-it-yourself debt settlement kits.  Do-it-yourself debt settlement kits are available online and are less expensive than a professional, third-party debt settlement program.

Bankruptcies in Southern California have risen in the past two years at an alarming rate, all thanks to the economic recession that has hit California disproportionately hard. In Riverside, California, for example, bankruptcy filings rose 55% between March 2009 and March 2010, and many California bankruptcy lawyers don’t think these rates will slow down any time soon.

The 2005 changes to bankruptcy laws slowed down the rate of bankruptcy and nearly put some California bankruptcy attorneys into bankruptcy themselves. After seeing the new laws shrink the rate of bankruptcy in California, the spike in bankruptcies over the last two years indicate just how difficult this latest recession has been for average California residents.

Wilshire Law Group

At the center of the bankruptcy hurricane sweeping through Los Angeles and the rest of Southern California is Los Angeles bankruptcy attorney Michael Shemtoub and his Wilshire Law Group. As a California bankruptcy attorney who has served Southern California for many years, Shemtoub has seen first-hand the devastation the recession has wreaked upon average California families.

Shemtoub and the other lawyers in his practice are deeply dedicated to seeing their clients through a challenging financial time in their lives. The testimonials on their website certainly reflect this, with client after client thanking Shemtoub and Wilshire Law Group for making the difficult decision of bankruptcy much easier.

Wilshire Law Group shows its commitment to clients new and old through two main promises: first, new clients can discuss their case with a skilled Los Angeles bankruptcy lawyer during a free consultation. The free consultation includes helping clients decide if bankruptcy is the right solution for them, along with a free estimate of how bankruptcy might “increase” a potential client’s credit score.

The second commitment Wilshire Law Group makes to its clients is a guarantee to return every client call within twenty-four hours. This promise is a major relief for clients who have grown frustrated with another California bankruptcy lawyer who never seems to be available to discuss their case or return phone calls.

The Relationship Doesn’t End When the Paperwork is Filed

At the Wilshire Law Group, Michael Shemtoub and the other bankruptcy attorneys are dedicated to keep clients out of debt after bankruptcy. Even after their bankruptcy case is over, clients of the firm are invited to further their financial education by attending workshops devoted to consumer and business bankruptcy law. Some topics in the past have included:

– New developments in bankruptcy laws
– Credit reporting
– Credit scoring
– How to fight mortgage service claims

These helpful educational seminars demonstrate the Wilshire Law Group’s commitment to its clients even after bankruptcy proceedings are over.

Areas Served by the Wilshire Law Group

Shemtoub and the other attorneys in Wilshire Law Group are dedicated to serving the residents of Southern California. Anyone who lives in Los Angeles, Beverly Hills, Bakersfield, Fresno, Orange County, Riverside, San Diego, San Jose, Santa Rosa, or the San Fernando Valley and is facing Chapter 7 bankruptcy or Chapter 13 bankruptcy owes it to themselves to call Wilshire Law Group today to schedule a free consultation with a California bankruptcy attorney.

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You can throw the reminders in the Cuisinart or chuck them into a garbage can, but that won’t make the debt go away. Debt hovers like a carrion bird over a dying beast, with annual rates of 28% or more compounded monthly, month in and month out. So you may want to pay credit card off fast.

First, break the habit of paying only the minimum required each month. Paying the minimum — usually 2% to 3% of the outstanding balance — only prolongs the agony.Instead, bite the bullet and pay as much as you can each month. If your minimum payment is $100, double that to $200 or more.Make a few sacrifices, and you will find the extra dollars needed to increase your debt repayments dramatically. Those increased payments will save you hundreds, if not thousands, in interest payments.

Take a long, hard look at all your credit cards. Pay particular attention to the one with the lowest interest rate. If your entire balance is too large to fit on one low-interest card, pay at least the minimum amounts due on all of your cards except one. Lather, rinse, and repeat. Another way to transfer higher-interest debt to a lower-interest card is to take advantage of the promotional offers many banks use to entice you to their line of credit. You’ve seen the come-ons. Take care, though, before you act. Examine the offer closely.

You could cash out your savings and investments and use the proceeds toward debt repayment. Yeah, no one wants to do that. Do you have life insurance with a cash value? If so, borrow against the policy. Perhaps your family or friends could float you a loan. Who else knows, trusts, and loves you like they do? Do you own your own home and have equity that’s accumulated through the years as you’ve paid off the mortgage? A HEL gives you two ways to save. First, by using the loan proceeds to pay down your debt, you trade something like an 18% loan for a 6%-7% loan.

The danger here is falling into a common trap. Many get an HEL, pay off existing debt, and then ring up the charges on the credit cards all over again. Do you participate in a 401(k) qualified retirement plan at work? Most 401(k) plans have a feature that lets you borrow up to 50% of the account’s value, or $50,000, whichever is smaller. But there are drawbacks. First, the loan and interest will be repaid with after-tax dollars, but the interest will be taxed again when you withdraw money from the 401(k) years later. OK, you’ve done all you can. Savings are gone; relatives have been tapped out; you don’t have a home or 401(k) to borrow against.

Let your creditors know your situation. Tell them that if you are unable to renegotiate terms, you’ll have no other recourse but to declare bankruptcy. Indeed, many will negotiate away the farm before they’ll write off your debt. As lawyers love to say, everything is negotiable. What if you decide you can’t pay down your debt using any of the methods listed above? What should you do? Your credit record will contain this information for 10 years, thus ensuring you will have a tough time obtaining credit you can afford during that period. Additionally, as odd as it seems, it costs money to file for bankruptcy and pay credit card off.

There are two types of personal bankruptcy relief: Chapter 7 and Chapter 13. While Chapter 7 relieves you of the responsibility of repaying most creditors, you may have to surrender much of your property to help satisfy the debt. However, different states have different laws that grant you exemptions on certain types of property, such as a certain amount of equity in your home, a low-value vehicle, small amounts of jewelry and other personal property, and tools you use in your trade or business. Chapter 13, sometimes called the “wage-earner plan,” is different. You keep your property but surrender control of your finances to the bankruptcy court. Remember bankruptcy is always a last resort and if you get help you should be able to be better off in less than a year.

A newfound study has concluded that consumers have increased their debt by 3.6% last year after increasing at 8.6% in 2004. Over the same two-year period, minimum monthly payments have increased by 10%. Experian’s “National Score Index” also found that the number of late payments increased by nearly 20% between 2004 and 2006. The “Index” is based upon a nationwide analogy of the millions of consumer credit profiles. These figures exclude mortgage debt.

In February of 2004, the average debt was $10,371 with average credit card payments of $489.00.

In February of 2005, average debt from credit cards rose to $11,261.

In February of 2006, average debt from credit cards rose to $11,669.
Source: Experian’s National Score Index

These are simply that-averages. Most people have much more credit card debt than the listed $11,669.

There is a logic behind all of this madness and it is both disturbing and threatening. Should you be late 3 days on one credit card, it will be listed on your credit file as being 30 days late. That is the format that the credit bureaus use to categorize tardiness. If you are 31 days late, that card will be disclosed as being 60 days late and so on. You get the general idea.

Now for the disturbing part. While you are late on one credit card, the remainder of your card companies are monitoring your credit file on a daily basis. When they see that you have been late on one card, they can and will raise your interest rate to whatever they choose. This is perfectly acceptable, as they were the largest contributor to the last political campaign. Notice that I did not say that it was legal, only acceptable.

You see, credit card companies want you to be late, either with them or someone else. It makes them a lot of money in the long-run. With the new bankruptcy laws that went into effect, you will be bankrupt before you are ever even able to file bankruptcy. And, after you do file, you will have to pay (out of your pocket) to attend credit counseling classes. In these classes, the credit counseling agency will basically decide whether or not you are a candidate for bankruptcy! If you are a candidate, you can stand to lose everything. If you are not a candidate (according to the credit counseling agency), they will take control of your paycheck and they will pay your monthly payments late. Your credit file will be ruined anyway. You just won’t have a bankruptcy listed on your credit file. In effect, you will become a surf for the kingdom.

The reason that you must first undergo credit counseling is a known fact that is hidden in plain site. The credit card companies own and rule the consumer credit counseling agencies. They advertise themselves as being non-profit, but they actually work for the credit card companies. Everything in the financial world is linked together, whether it is linear or not.

Should I File For Bankruptcy?

Consider the questions listed below. If you answer yes to three or more of the questions, you should speak with a bankruptcy lawyer right away. We can help. For a thoughtful, caring assessment of your situation and your options and for answers to your bankruptcy questions, contact our San Francisco bankruptcy law office today.

1. Do you pay over 20 percent interest on any of your debt?

2. Have you been served with legal papers, are you being sued, or are your wages already being garnished?

3. Are you receiving harassing calls from creditors?

4. Do you routinely spend more than you earn?

5. Is it difficult for you to see a way of getting out of debt?

6. Can you only afford the minimum payment required on your credit cards?

7. Do you panic when faced with an unexpected expense, such as a car repair?

8. Do you skip payments on some bills in order to pay other bills, transfer balances, or use cash advances on one credit card?

9. Have you experienced a change of employment such as a job change, loss of employment or loss of overtime that impacts your ability to keep the status quo?

10. Do you find yourself arguing with your spouse about money, or find that you are afraid to talk to your spouse about money at all?

11. Are you thinking about filing for bankruptcy?

12. Do you buy necessary items, such as food and clothing, on credit?

13. Do you make regular payments without your balances going down?

We build relationships with our clients. Our practice is centered on providing personalized service and representation in an atmosphere and culture of care.

When good people have serious financial problems, they owe it to themselves and their families to consider bankruptcy. There is no reason not to take advantage of our free office consultation and personalized evaluation from an honest and caring bankruptcy lawyer. Visit our website at www.sfdebthelp.com. Call us at (415) 963-4004 or email us at email@jclawgroup.com.