At the end of May 2009, President Obama signed into law the Credit CARD, Act of 2009. The CARD (Credit Card Accountability, Responsibility and Disclosure) Act aims to curb the excesses of the credit card industry by curtailing some of the more noxious credit card practices. The first provisions of the new bill will step into effect in February 2010, the last in August of 2010.
Senator Christopher Dodd, D-Conn., chairman of the Banking Committee and a major champion of credit card reform, called the bill “a victory for every American consumer who has ever suffered at the hands of a credit card company.” So what exactly does the new credit card legislation accomplish? Here are a few highlights of the changes the new credit card bill will introduce:
Limits on universal default. The dreaded universal default clause has given card issuers the right to dramatically increase cardholders’ interest rate if the cardholder falls behind on bill payments, not just for their credit card, but for other, unrelated bills. Under the new rules, a cardholder would have to be 60 days behind on a payment before card companies would be allowed to increase the interest rate on an existing balance. Further, card holders would have the ability to get the lower rate restored to the previous, lower rate by paying the minimum balance on time for six months.
No more retroactive interest rate increases. Once the new legislation steps into effect, credit card companies will no longer be able to raise interest rates on existing balances, unless the card holder is 60 days behind on payments (see above). In addition, card issuers will not be able to increase interest rates at any time in the first year after issuing a credit card. After the first year, card issuers can still raise rates on new purchases, but they must provide 45 days notice before raising interest rates.
Greater protection against late fees. Credit card bills must be sent out no later than 21 days before the due date to give consumers adequate time to send out their payment and avoid late fees.
No more due date traps. Card issuers can no longer set strange payment deadlines like 1 pm on the day the payment is due. Under the new legislation, as long as the credit card company gets the payment by 5 pm on the due date, it must be considered on time. Similarly, card companies can no longer charge late fees when the due date falls on a Sunday or a holiday and the payment arrives the day after the due date.
No more payment allocation tricks. Credit cards typically come with many different APRs, one for cash advances, one for purchases and one for balance transfers. Card issuers have long stacked interest charges in their favor by applying payments to the balance with the lowest APR first. Under the new legislation, any amount paid over the minimum balance must be applied to the highest-interest debt first.
Limits on over-the-limit fees. Card issuers can no longer allow over-the-limit charges without the consumer’s consent. In short, unless you opt in to allow over-the-limit charges, you will no longer be able to make charges that bring you over the limit. If a customer hasn’t agreed to opt in for over-the-limit charges and the credit card company still authorizes a charge that pushes the account over the limit, the card issuer will not be able to charge an over-the-limit fee.
Curbs on student credit card issuances. The bill seeks to protect young consumers aged 18 to 21 from getting in over their head in credit card debt. Going forward, to get approved for a credit card, consumers in this age group must prove that they have adequate income, have a parent or guardian as a co-signer, or they must complete a financial literacy course.
Puts an end to double-cycle billing. The CARD Act bans double-cycle billing, which lets card issuers base finance charges on both current and previous credit card balance, enabling them to charge interest on balances paid off the previous month and unfairly increasing interest charges.
