New Credit Card Law: What Does it Mean for You?

Changes in the credit card industry have been demanded by consumers for years, as interest rates and finance charges have soared.  Recently, President Barack Obama signed the Credit Card Accountability, Responsibility, and Disclosure Act into law.  The first phase of this law goes into effect August 20, 2009, but before credit card companies have “hiked interest rates, closed accounts, increased minimum payments and fees, reinstituted annual fees and slashed credit limits — partly because of the souring economy and rising loan defaults and in anticipation of tough new credit card billing restrictions,” according to CreditCards.com.

But what does the Credit CARD Act of 2009 mean to you, exactly?  Although the new law might have some negative results, this law is designed, at heart, to help consumers from what have been called “deceptive practices” by credit card companies:

1.  Interest rate increases are only permitted under specific circumstances, such as at the end of a special introductory promotional rate.  For other significant changes, 45 days’ advance notice is required, and the consumer has the option of opting out of the rate increase.  This option means that the card may not be used in the future (if the card is used, that may be deemed consent to the new rate).  Moreover, the card must be paid off within five years after the account is closed.

2.  Credit card companies may no longer arbitrarily change due dates without notifying consumers.  Instead, payments are due after a “reasonable amount of time,” but no less than 21 days after credit card bills are mailed or delivered to consumers.  It is the responsibility of the issuer to mail the statements to ensure that consumers receive their statements 21 days before the due date.

3.  Opting-In To Over-Limit Fees.  In the past, credit card companies have been able to charge consumers exorbitant fees when the consumer’s purchases exceed the credit limit set for a specific card.  Now, consumers will be given the choice, and those who opt out of these fees will simply have their card rejected when they attempt to make a purchase that will result in the card exceeding the limit on the card.  For those who do opt in to the over-limit fees, the charges must be reasonable.

There are other changes to the law, which will go into effect later.  Beginning February 22, 2010, the following changes will be implemented:

1.  Credit card applicants under the age of 21 years of age must have a co-signer or show proof of sufficient income in order to obtain a credit card.

2.  Impact of Minimum Payments must be Disclosed.  Under the new law, credit card companies must let you know exactly how long it will take you to pay off your credit card if you pay only the minimum amount due each month.  In an effort to increase transparency, credit card companies must also provide information regarding the amount that should be paid each month by the consumer if he or she wants to pay off their credit balances within 12, 24, and 36 months and will be required to disclose what amount of those payments will be attributed as “interest.”

3.  No more “any time, any reason” rate increases.  No more universal default.  Have you ever had a credit card company notify you that your interest rate is increasing due to your payment history with other creditors?  Under the new law, this practice is no longer permitted, although issues will be permitted to raise rates for those who fall more than 60 days behind on their payments.

4.  Payments in excess of the minimum amount due will be applied to credit card balances with the higher interest rates, first, in those instances where cardholders have accounts from the same issuer that carry different interest rates.

5.  It’s the End of Double-Cycle Billing! In the past, credit card issuers have calculated finance charges based on previous billing cycles.  What this means is that consumers who did pay of their balances were charged for the previous cycle, even though they paid off the card in full.  Issuers are limited to the current billing cycle only.

6.  Bills are not late until after 5:00 p.m. on the due date of the bill.  Under the new law, credit card companies can no longer tell you that you will incur a late charge if their mailman delivers your bill to their offices after some arbitrary time on the due date, such as 9:00 a.m.  Late fees will not be incurred before 5:00 p.m., or when bills are due on weekends, holidays, or other days on which the credit card issuer is closed.

7.  For those who acquire subprime credit cards for which they pay fees to open the account (in an effort to improve their credit history, for example), relief is available in the form of a limit on the amount of upfront fees a credit card company can charge.  Thus, fees cannot exceed 25% of the available credit limit.  For a card with an available limit of $300, therefore, the credit card company may only charge 25% of that limit, or $75.00, rather than some arbitrary amount set by the company.

8.  Credit card agreements must be made available on the internet, and electronic copies must be submitted to the Federal Reserve Board.

In the final phase of the new law, which will go into effect August 22, 2010, gift cards, prepaid cards, and gift certificates may no longer have an expiration of five years, unless the expiration date is clearly disclosed.  Additionally, inactivity fees or service fees on gift cards will not per permitted unless there has been no activity on the card for 12-months and the issuer discloses the fee before the gift card is purchased.

Some of these changes require affirmative action on the part of the cardholder, and credit card issuers should provide information to cardholders to allow them to maximize the benefits of the new law under their specific circumstances.  For more information on these new changes, please visit http://www.creditcards.com.

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