Credit CARD Act of 2009: Provisions Start February 22, 2010

A new federal credit card law that takes effect this week could have changes that impact you and your business. On May 22, 2009, President Barack Obama signed the Credit Card Accountability, Responsibility and Disclosure, or Credit CARD, Act of 2009 into law. The legislation is intended to improve consumer disclosures and end some aggressive fee practices in the credit card industry. Most of the provisions related to the act go into effect on Monday, February 22, 2010. 

I will highlight the key changes below, but basically the law bans many of the hidden profitable tactics that credit card companies and banks use to make money. The law does not limit the amount of fees or the interest rates that banks charge (but they must disclose these fees). The act also does not apply to business or corporate credit cards.
 
Industry experts expect these changes to result in $12 billion in lost revenue to the banks. As I analyze what this means, I fully expect banks to find ways to make up for this lost income. Look for the return of routine annual fees, much fewer reward programs, and shorter grace periods. I also expect business and corporate cards to have higher fees and fewer benefits to make up for the lost revenue from individual consumers. Some businesses may consider getting rid of a corporate card and replacing with personal credit cards.
 
Here are the highlights of the credit card law:
 
Retroactive Rate Increases
Issuers can't raise rates on an existing balance unless a promotional rate expired, the variable indexed rate increased or you paid late by 60 days or more. No longer will they be able to punish borrowers for late payments on unrelated accounts under the practice of universal default or due to "anytime, any reason" clauses.
 
More Advance Notice of Rate Hikes
Consumers get 45 days notice before key contract changes take effect, including rate increases. In the past, this was only 15 days.
 
Fee Restrictions
Cardholders will not face overlimit fees unless they elect to allow the creditor to approve overlimit transactions. Issuers can't charge more than one overlimit fee per billing cycle. In general, banks can't charge consumers a fee to pay their credit card debt, a cost some cardholders encounter for payments made by telephone or internet.
 
Restricts Card Issuance to Students
Credit card issuers will be banned from issuing credit cards to anyone under 21, unless they have adult co-signers on the accounts or can show proof they have enough income to repay the card debt.
 
Ends Double-Cycle Billing
The new law bans double-cycle billing, the practice of basing finance charges on the current and previous balance. Under this method, the issuer could charge interest on debt already paid off the previous month.
 
Fairer Payment Allocation
In the past, most card agreements were written that payments were applied to lower-rate balances first. Under the Credit CARD Act, above-the-minimum payments are required to be applied first to the credit card balance with the highest interest rate.
 
More Time to Pay
Card companies must send statements 21 days before a payment is due. Current law requires a mere 14 days notice.
 
Gift Card Protections
The new act stops gift cards from expiring for at least five years. Issuers cannot assess inactivity fees unless the card has gone unused for 12 months.

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by Scott Heintzelman - Scott is a CPA, CMA and CFE living in Pennsylvania. Scott is a partner serving on the executive team at McKonly & Asbury LLP, a regional accounting firm with multiple offices in the Mid-Atlantic. The firm has been an IPA ALL-STAR as well as winning Best Places to Work in Pennsylvania for numerous years.

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