Reader Question: How will the New Credit Card Law Affect Balance Transfer Offers

A reader recently asked whether the new credit card law that goes into effect next month will affect the richness of balance transfer offers:

I was wondering what the new federal regulations/laws for credit card companies coming up in February will have on the richness of these balance transfer offers if any?
Thanks!
Leslie

The short answer is, it already has. One year ago I obtained a no fee balance transfer offer for 12-months. Today, you can’t find a no fee 0% balance transfer. They just don’t exist. A year ago you could get an offer that lasted 15 months. Today, 12 months is the longest balance transfer deal you can find. Here’s why.

Part of the new law changes the way credit card companies apply payments to your balance. For example, let’s assume you have a $5,000 balance at 0% from a balance transfer, and you also have $1,000 on the card from purchases at 11.99%. Currently, credit card companies apply any payments above the minimum required to the 0% balance. Only when it is paid in full do payments go toward the 11.99% balance.

The new law changes all of this. Starting next month when the credit card law becomes effective, payments above the minimum must be applied to the highest interest rate balances first. The result, of course, is that consumers will pay less interest, and credit card companies will make less money on balance transfers.

While this sounds great for consumers, and it is, it comes at a price. The good news is that we’ve already paid the price. The price is fewer balance transfer credit cards and higher transfer fees. Following the enactment of the credit card law, most 12-month deals went down to 6 months. And some cards started charging balance transfer fees as high as 5%. I suspect part of these changes had as much to do with the credit crisis last year as they did with the credit card law.

But now several good 12-month 0% APR on balance transfers have come back. And I don’t think the law going into effect next month will change those offers. The credit card companies are already prepared for the law and have priced it into their credit cards.

But these offers won’t last forever. I suspect what will really curtail balance transfer offers will be rising interest rates. While rates may not go up substantially in a month or two, a year from now could be a whole different story.

If you are searching for a balance transfer deal, here are several 12-month 0% offers still available:

Citi: The Citi Platinum Select offers 0% on balance transfers and purchases for up to 12 months (go to the Citi Platinum Select website for more details).
Discover: The Discover More card offers 0% on balance transfer for up to 12 months and 0% on purchases for 6 months. The card also has a cash back feature that pays up to 5% cash rewards on purchases (go to the Discover More website for more details).
Chase: Both the Chase Freedom(SM) and Slate(SM) by Chase offer 0% introductory rates. You can get more details on these cards on our Chase credit cards review page.

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