President Obama signed the Credit Card Accountability, Responsibility and Disclosure (Credit CARD) Act of 2009 into law in May. The bill is designed to improve credit card practices, including interest rates, fees and customer disclosures. The act is set to go into law in February 2010. Here’s a guide to eight of the best benefits consumers can expect from the Credit CARD Act.
1. Better Notice Before Rate Increases
Currently, credit card companies are required to give a 15 day notice before interest rate increases can take effect. The Credit CARD Act will increase this notice to a full 45 days, allowing consumers more time to decline the increase or make arrangements. This change will go into effect on August 20, 2009. Although it doesn’t apply to credit limit changes and doesn’t cap interest rates, this provision makes a big change for consumers that find themselves suddenly hit with an enormously changed interest rate seemingly overnight.
2. No Retroactive Rate Increases
After this provision takes effect in August of 2009, credit card issuers will no longer be able to raise the rate on an existing balance unless the borrower is at least 60 days past due. This means no more will consumers have to face the infamous clause in credit card offers stating that rates can change at any time and for any reason. It’ll also put an end to punishing customers that are late on other credit card accounts with the universal default clause. In addition, if someone triggers the new default rate with a 60-day delinquency, the credit card issuer will be required to lower the interest rate to it’s previous level if the card holder shows six consecutive on-time payments on the account. Rates won’t go up during the first year of a new credit card and promotional periods will be required to last at least 6 months.
3. New Fee Restrictions
When the law takes effect, credit cardholders won’t be charged overlimit fees unless they allow their creditor to accept overlimit transactions. Even so, issuers won’t be able to charge account holders more than one overlimit fee during each billing cycle. Other fee changes include the abolishment of pay-by-phone and pay-by-Internet fees some banks charge. Payments will also need to be accepted on the due date without triggering a late fee. Cardholders will now also be able to pay at any local branch with the payment credited that day. Limits are also placed on subprime cards that use nonpenalty fees which can take up to 70% of the credit limit upon opening the account.
4. Age Restrictions
The Credit CARD Act will place restrictions on consumers between the ages of 18 and 21, denying them credit unless they have sufficient income, a co-signer or complete a financial literacy class. The average college student carries a balance of $3,173 on credit cards.
5. Changes to Payment Allocations
Currently, most payments made to credit card balances are first applied to no or low-interest balances first. This means that cash advances with a high interest rate or anything not under a promotional period will be paid first. The Credit CARD Act changes this and will require any payment above the minimum to be applied to balances with the highest interest rates first.
6. An End To Double-Cycle Billing
The Act will also ban double-cycle billing, which bases finance charges on current and previous balances, charging interest on debt that’s already been paid.
7. More Time to Make Payments
When this provision takes effect in August of 2009, credit card companies will be required to send account statements out 21 days before the due date, instead of the current, paltry 14 day notice.
8. Gift Cardholder Protection
Lastly, the Credit Cardholder Bill will give new protections for people that have gift cards. Gift cards will not expire for at least 5 years and inactivity fees will become illegal. This provision goes into effect in August 2010 and will stop the mistreatment of giftcardholders.
These changes will do so much to protect consumers from unfair credit card business practices and make terms and interest rates more understandable and transparent. Some of these provisions will go into effect in August of this year, providing relief to consumers that are being taken advantage of. Anyone that’s ever missed a payment and found themselves with sky-high interest rates and no way of going back will find help from this new bill, as will students who may be tempted to irresponsibly use credit cards. While many people cite unforeseen effects of the Bill–such as driving students from credit cards to payday loans and causing credit card companies to begin charging annual fees on all accounts–the benefits of the new Credit CARD Act far outweigh some of the negative effects. The Act is set to change the way the credit card industry treats consumers.
For more information about the new credit card bill, read “Credit Cardholder’s Bill of Rights Act of 2009.”