A new set of provisions kicked in under the 2009 Credit Card Accountability, Responsibility, and Disclosure Act (CARD) on February 22. The rules are designed to give consumers a break by preventing lenders from charging over-limit fees without the consumer’s consent, by requiring more information to be made readily available to accountholders, and by limiting the availability of credit cards to certain individuals.
"These new rules don’t absolve consumers of their obligation to pay their bills, but they finally level the playing field so that every family and small business using a credit card has the information they need to make responsible financial decisions", President Barack Obama said.
U.S. Department of the Treasury Secretary Timothy Geithner said the new rules would help taxpayers better understand how credit card companies operate. “We continue to work on strengthening consumer protections and disclosure for a wide array of financial products,” said Geithner, who added that the Obama administration intends to create a watchdog agency, the Consumer Financial Protection Agency, designed to protect consumers.
What are the provisions, and what do they mean to you?
First, no action is required on the part of credit card holders as a result of the changes. The burden of compliance is on the credit card companies. Even so, consumers need to be aware of what might happen. Credit card companies will, under the new law, find it more difficult to charge higher rates on higher-risk cardholders. Card companies say they will make up the difference by raising rates for borrowers who are not high risks, according to The Washington Post. Overall, that means some customers will see rates increase.
According to The Federal Reserve Board Web site:
During the first year after opening your account, your credit card issuer cannot raise your rate. However, there are exceptions. Your rate can go up if:
- Your card has a variable rate tied to an index.
- Your card has an introductory rate (which must remain in place for a minimum of six months). When the introductory rate expires, your rate can automatically rise to the go-to rate that was disclosed when you received the card.
- You are more than 60 days late making a payment.
- You have entered a workout agreement with your credit card company, but failed to make the agreed upon payments.
As part of the new provisions, credit card issuers are required to provide customers with more information. They must notify you 45 days before they can:
- Raise your interest rate.
- Change the fees that affect your account, such as late fees, annual fees, cash advance fees, or make other significant changes to the terms connected to your card.
Card companies also must give you the option to cancel the card before the intended changes take effect. However, if you cancel the card, the credit card issuer may close your account and raise your payment so that you pay off the balance sooner.
Credit card companies do not have to notify you 45 days in advance if:
- You have a card with a variable interest rate that is tied to an index. When the index rises, your rate can rise with it, without the benefit of notification.
- Your card has an introductory rate set to expire.
- You have a workout agreement with the company and you have not lived up to the agreed upon payments.
Other notification issues
Penalties. Your statement also must disclose the penalty you will be charged for late payments and provide a warning that paying late could result in higher interest rates.
Payoff. Statements must contain a chart which will tell you how long it will take to pay off your balance if you make only minimum payments, as well as telling you how much you would have to increase your payment to clear the current balance in three years. Here’s an example provided by the Fed: Assume you owe $3,000 and your rate is 14.4%. Making minimum payments of $90 would take you 11 years to pay off the balance, which would include interest of $4,745. Making slightly higher payments of $103 would pay off the balance in 3 years, and the total interest would be $3,712.
Fees and rates
Over limit. Before a credit card company can charge you an over-limit fee, it will have to consult you. Here’s how this works: Transactions that will take you over your credit limit will be declined unless you opt into a program that allows them to charge you over-limit fees.
Payment method. Card companies also will not be able to charge fees for any method of payment (mail, phone, or electronic transfer). They still will be able to charge a fee if you must make an expedited payment with the assistance of a customer service representative, as opposed to a recording.
Fee limits. Cards that come with high fees will be subject to new limits. Fees, such as an annual fee or application fee, cannot be for more than 25% of the initial credit limit. This does not apply to penalty fees or late-payment fees.
Multiple balances. If you have a card with various balances at different interest rates, any amount you pay over the minimum will be applied to the balance with the higher interest rate (unless you have a deferred payment agreement).
Single-cycle billing. Card companies can only charge interest on balances in the current cycle, as opposed to double-cycle billing.
Credit card statements/payments
Credit card issuers must provide you with a credit card bill at least 21 days before your payment is due. Plus,
- Your due date must be the same every month.
- The payment cut-off time cannot be earlier than 5 p.m. on the due date.
- If the payment due date falls on a weekend or holiday, you will have until the following business day to make an on-time payment.
Credit card issuers will no longer be able to employ the practice of universal default. This occurs when a consumer misses or makes a late payment on one account, and a credit card company uses that information as justification for raising the interest rate on an unrelated account held by the consumer, even if the consumer was current on that account.
The new law also prohibits credit card issuers from raising rates on outstanding balances of accountholders who pay on time. Companies can, however, raise the rates on new purchases, provided they notify accountholders first.
Limited access to credit cards
Consumers under 21 years of age will be unable to open a credit card account unless they have a cosigner or can demonstrate the ability to make payments. If you have a cosigner, the cosigner must agree to increases in your credit limit.