New Credit Card Legislation

President Obama recently signed the Credit Card Accountability, Responsibility and Disclosure Act (CARD Act) that will change a number of processes that some banks have developed over the years regarding their credit card programs. This act will have very minimal impact on Mazuma cardholders since we have not used the unfriendly business practices most targeted by these measures. Most of these rules apply 9 months from the signing date (May 22nd) except as noted. Additionally, there are a number of anticipated actions that banks may take to offset the potential lost revenue from this bill; Mazuma does not expect to take these steps either. Let me first describe the items in the legislation individually:

  1. Retroactive rate hikes will be banned. Mazuma has never raised rates on Members based on some specific activity, purchase or change in some other credit function.
  2. Banks must provide at least 45 days notice before changing the rate or terms on a credit card (unless it is disclosed as a variable rate card). Mazuma has always provided fair lead times before changing loan terms. In fact, Mazuma has not changed any of the terms or rates on our credit cards for more than eight years. (Rule is effective 90 days from signing of Act.)
  3. Banks must get customer approval to let the balance exceed the credit limit on a card account. This may prove to be a “double-edged sword” since Mazuma can allow such over-limit payments on a case-by-case basis as a convenience to Members and does not charge an over-limit fee. If we apply this provision strictly, some important Member transactions may be declined instead of paid.
  4. Banks have to wait until a customer is 60 days late making a minimum payment before applying a penalty. Mazuma has long had a 55-day grace period (30 days between statements and 25 days before the payment is late), but we have made exceptions when possible and been flexible with late fees. This will have a minimum impact on Mazuma cardholders.
  5. Banks may not charge late fees unless the bill/statement is mailed or received at least 21 days before the due date.Due dates must be the same day every month. Mazuma has consistently made every effort to provide more than three weeks between the statement and the payment due date. And we work with Members to adjust fees under unusual circumstances. (Rule is effective 90 days from signing of Act.)
  6. Payments must be credited on the day received rather than applying an arbitrary cutoff sometime earlier in the day. Mazuma has always provided credit on the day payments were received up to virtually the time our branches close.
  7. Banks must leave “teaser rates” in place for at least six months before raising them and initial (non-promotional) rates must remain for at least one year.Mazuma has never used teaser or promotional rates to attract business and does not plan to do so.

 

Since many banks will see reduced income from these new rules, the media has been listing some possible reactions that credit card issuers may use to offset the revenue lost due to the new laws:

  1. Banks may return to charging annual fees of $75 to $100 per year. Mazuma does not charge such a fee and does not plan to do so in the foreseeable future.
  2. Banks may increase rates and fees on their cards.Mazuma has not changed our rates in more than eight years and does not anticipate doing so in the near future. Mazuma has some of the lowest fees available on credit cards and many of them can be avoided by prompt payments and appropriate card use.
  3. Banks may reduce or cancel their rewards programs. Rewards programs can be very expensive, and we all know that there is no “free lunch.” Mazuma has avoided rewards programs because they are costly; they benefit only a portion of the card community, and they rely on “breakage” (rewards not cashed in once earned) to be profitable. We prefer to offer lower overall rates and fees.
  4. Banks may eliminate the “grace period” before purchases begin to be charged interest.Mazuma currently provides 25 grace days on purchases (VISA rules require cash advances to accrue interest from the date of the advance), and we do not anticipate a change to that practice.

Mazuma has always offered simple, straightforward credit card products at low rates and without complex rewards programs, annual fees or other “tricky” components. This may have lost us business in the past, but with the new rules being introduced, it now seems that an honest, Member-focused product is a wise strategy. Since this will be a very complicated set of changes (we are still learning about all of the issues we will have to address), we hope you will feel free to call us if you have questions or concerns. We encourage you to make your Mazuma VISA card your preferred option—we have been and will remain “all about you!”

 
Sincerely,
Rob Givens, President/CEO