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Today is the day that most of the provisions of the Credit CARD act of 2009 go into effect. It is promising an era of improved consumer protection. How will it affect you today? And why are so many customers afraid of the Credit CARD Act?
That may be because today is the day many credit card issuers have been prepping for – and possibly dreading. The card issuers may not have anything up their sleeves. But consumers still worry.
All in all, however, we think it is the day credit card customers will enjoy more fair practices when it comes to interest rates and due dates. You also should see (almost) full disclosure from credit card companies regarding terms and policies and even your personal financial state.
Nine Ways the Credit CARD Act Affects You Today
Let’s explore the positive policies put into place as a result of the Credit Card Act of 2009. While many went into effect last August, and still others won’t apply until August 2010, the bulk of the policies take effect today.
1. Payments over the minimum are now applied to highest interest rate balances.
Remember how your credit card payments used to go toward the lowest interest rate balance first?
In other words, if you had an existing balance of $1,000 at 14% and then took advantage of a 0 % balance transfer offer, your payments would be applied to the 0 % balance transfer first.
Now, when you make a payment above the minimum payment on your credit card, the issuer must apply that overage to your highest balance first. It’s similar to allocating additional money paid to a mortgage to your principal, rather than the interest.
Beware: If you pay only the minimum amount due, the entire amount will still go to the lower interest balance.
2. No more “double-cycle” billing.
If you carry a balance, lenders cannot consider the average daily balance from the previous billing cycle when they calculate interest. This protects customers from higher finance charges when they carry a balance.
3. Due dates must be the same each month.
Tired of due dates that change? Now, they must be the same day each month.
If that date falls on a weekend or holiday, you’ll have until the next business day to pay without penalty.
Beware: Payments must be made by 5 PM on business days.
4.No retro-active interest rate hikes.
If your bank raises interest rates on your variable APR card, the new rate can only apply to future purchases.
Beware: A host of exceptions exist. Higher interest rates can apply to existing balances IF:
- You’re in default for 60 days
- An introductory period (of at least 6 months) ends
- You have a variable APR and have had the card longer than 12 months
- Your active duty in the military has ended
5. No more “universal default.”
A credit card issuer cannot raise your interest rate to the default APR due to a late payment on unrelated credit card or utility.
6. No additional fees for payments.
Credit card issuers can no longer charge a fee for making payments by phone, mail or electronic transfer.
Beware: There might be a fee if you are expediting a payment to avoid a late payment.
7. Fees on subprime cards cannot exceed 25% of the credit card’s available limit.
Beware: This policy only applies to the first year and does not apply to late, insufficient funds, or over-the-limit fees.
8. Customers must opt-in to over-the-limit fees.
Credit card issuers can only assess over-limit fees once during each billing cycle.
Beware: If you don’t opt-in, your credit card will be rejected if you attempt to exceed your credit limit.
9. Minimum payment disclosure.
Your credit card statement must show how long it will take to pay off your credit card balance if you make only the minimum payment each month, as well as how much interest you will pay at the current rate. Additionally, the statement must show how much you must pay each month to pay off the balance within 36 months — and the total interest cost if you do so.
Beware: It can be sobering to see these details laid out in black and white, but hopefully credit card consumers will let the information motivate them to get out of debt more quickly.
Come back tomorrow when we talk about some of the potential downsides to these new credit card policies — and how to manage your credit in the new financial landscape.