The New Credit Card Act

by Belinda Rosenblum

As published by the American Society of Administrative Professionals at http://www.asaporg.com (member only site):

What the New Credit Card Act Means to You

  • Wondering why you are getting so many letters from your credit card companies in the mail recently?
  • Have you noticed any changes to your billing statements?
  • Concerned about what the current credit CARD law is all about?

There is a very good reason—because your credit card companies now have increased obligations (literally) to communicate with you. President Obama signed the Credit Card Accountability, Responsibility and Disclosure (or Credit CARD) Act of 2009 into law on May 22nd. Most of the provisions went into effect on February 22, 2010, unless otherwise stated, and are meant to improve disclosures to consumers and end egregious practices in the credit card industry.

Issuers won’t be able to raise interest rates on existing balances as long as you pay on time and they will need to provide at least 45-day advance notice of fee changes and interest rate increases. Just these two changes alone will save consumers an estimated $10 billion annually, according to the nonprofit research firm Pew in a recent report.

Here are the highlights for you:

Rate Increases

  • Although there are still no caps on interest rates, issuers now can’t raise rates on an existing balance unless a promotional rate expired, your variable indexed rate increased, or you were more than 60-days late. The key here is that they can no longer punish borrowers immediately under the “universal default” or the “anytime, any reason” clauses. Previously if you were late on any account (even unrelated), it could trigger an increase for you or if they just felt like giving you an increase.
  • If you do trigger the default rate because of a 60-day delinquency, the bank must restore the lower rate once you demonstrate 6-months of consecutive on-time payments. (This provision took effect August 2009.)
  • Significant changes in terms on accounts require 45-days advance notice of the change, rather than the previous 15-day notice.

Fee and finance charge restrictions

  • You will not face over-limit fees unless you elect to approve over-limit transactions. Issuers can’t charge more than one over-limit fee per billing cycle.
  • As the law puts an end to “double-cycle billing”, interest can only be imposed on balances in the current billing cycle. (Under the previous method, you could be charged interest on debt already paid off in the previous month, as the finance charges were based on the current and previous balance.)

Time to pay

  • You will notice a new interesting disclosure on your recent statement if you are carrying a balance on your card. Your monthly credit card bill will now include information on how long it will take you to pay the balance making only minimum payments and how much you need to pay monthly to pay off the balance in 3-years. (This will be shocking for many consumers carrying credit card balances!)
  • Credit card companies must send statements 21 days before a payment is due. Prior to August 2009, the law required only 14 days.

Payment allocation improvements

  • A detailed review of your previous card agreement would likely have revealed that payments would be applied first to the lower-rate balances. (So if you made a balance transfer on a card of $10,000 and then charged an additional $200 on the card, any payment you would have made to that card would have first been applied to the $10,000 and the $200 would have been accumulating interest at the current higher rate.) Under the new rules, above-the-minimum payments will be applied first to the credit card balance with the highest interest rate.

There are more new clauses related to card issuances to students, gift card protections, caps on high-fee cards, sub-prime credit cards for people with bad credit, and more, so it is essential you read the notices you receive from the credit card company to understand how this will all affect you. For more information, consult these sources:

Board of Governors of the Federal Reserve System – What you need to know: New Credit Card Rules

CreditCard.com- What the new credit card law means for you

Bankrate.com- 8 major benefits of new credit card law

All that being said, be sure to note that the Credit CARD Act applies to personal credit cards and excludes cards used for corporate/business purposes.

Keep your eyes open and your credit cards current. The best answer to approaching this new Credit CARD Act is to take charge of your credit and ditch your debt today!

If you’re ready to make more, save more, and stress less about your money, get your FREE report, audio, and ongoing money success tips from Belinda now at: www.OwnYourMoney.com. Belinda is the founder and chief money motivator of OwnYourMoney.com and host of Boston’s TV talk show “Money On Your Mind.”

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