CARD Act--Major Provisions One Month Away
The major provisions of the CARD Act take effect on February 22, one month from tomorrow.
"The CARD Act made some very beneficial changes for credit cardholders. Consumers have been wanting these strong protections for years and they will become real in one month," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. "However, the industry landscape has changed dramatically since May when the CARD Act was finally signed. Issuers have reacted to a very rough economy and this new law by finding new ways to increase their revenue. They have raised interest rates, closed accounts, increased fees and decreased reward programs. It is likely that the number of people who have been negatively affected by these new changes outnumber the people that significantly benefitted from the CARD Act."
Here are the major provisions of the CARD Act that go into effect on
February 22:
1) There will be new rules for interest rates. Issuers cannot increase rates during the first 12 months of a new account. On existing accounts, if your rate is increased, the new APR only applies to your new purchases; your existing balance is still charged the old interest rate. (There are some exceptions on both of these provisions: if the card has a variable rate and the index goes up; if the introductory period ends and the rate increases to the standard rate; the payment is more than 60 days late; payments fall behind in the debt management plan.) Any monthly payments above the minimum amount must be applied to the balance with the highest APR first.
2) There will be protections for underage consumers. If you are under 21, you will have to prove that you are able to make payments, or you will need a cosigner, in order to open a credit card account. Issuers are also prohibited from offering free gifts to these young adults as inducements for signing up for a credit card.
3) Over-the-limit fees are banned unless consumers give issuers permission to allow the transactions that put you over your credit limit. If consumers do not "opt in", then issuers cannot charge you this fee and your transaction may not go through.
4) Your statement must clearly explain how long it will take to pay your balance if you only make minimum payments. It must also tell you how much you need to pay each month in order to eliminate your balance in three years.
"This is one of the best provisions of the bill. It is too easy to pay your minimum amount without calculating how much more you need to pay to get out of this debt. Now the reality of how much you are paying in interest will be clearly stated. Hopefully, this will be an incentive for cardholders to pay more of their balance each month," says Hardekopf.
5) There will be caps on high-fee cards. If your credit card company requires you to pay fees (such as an annual fee, processing fee or application fee), those fees cannot total more than 25% of the initial credit limit. This limit does not apply to penalty fees such as penalties for late payments.
6) There will be changes and standardizations for billing and payments. Your due date should be the same date each month and the payment cut-off time must be 5 p.m. or later on the due date. If your due date is on a weekend or holiday when the company does not process payments, you will have until the following business day to pay.
7) Two-cycle billing will be eliminated. Credit card companies can only impose interest charges on balances in the current billing cycle.
8) Universal default is now prohibited. Issuers can no longer increase a cardholder's APR based on their payment records with unrelated accounts, like a utility bill.
In addition to these provisions, there are several rules that went into effect on August 22, 2009:
1) Your issuer must send your credit card bill at least 21 days (rather than 14 days) before your payment is due.
2) Your credit card company must give you 45 days notice (rather than 15 days) when they plan to increase your interest rate or certain fees (annual fee, cash advance fee, late fee).
3) If an issuer increases your interest rate, you have the right to "opt out" of that increase. You can no longer make any new purchases with that card, but you can continue to pay off your balance at the existing (lower) interest rate for up to five years.
"We have lived with the politics and consequences of this bill for almost two years. It will be interesting to see if these new provisions are helpful for consumers or if the higher rates and fees are the only lasting changes from the CARD Act," says Hardekopf.
"The CARD Act made some very beneficial changes for credit cardholders. Consumers have been wanting these strong protections for years and they will become real in one month," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. "However, the industry landscape has changed dramatically since May when the CARD Act was finally signed. Issuers have reacted to a very rough economy and this new law by finding new ways to increase their revenue. They have raised interest rates, closed accounts, increased fees and decreased reward programs. It is likely that the number of people who have been negatively affected by these new changes outnumber the people that significantly benefitted from the CARD Act."
Here are the major provisions of the CARD Act that go into effect on
February 22:
1) There will be new rules for interest rates. Issuers cannot increase rates during the first 12 months of a new account. On existing accounts, if your rate is increased, the new APR only applies to your new purchases; your existing balance is still charged the old interest rate. (There are some exceptions on both of these provisions: if the card has a variable rate and the index goes up; if the introductory period ends and the rate increases to the standard rate; the payment is more than 60 days late; payments fall behind in the debt management plan.) Any monthly payments above the minimum amount must be applied to the balance with the highest APR first.
2) There will be protections for underage consumers. If you are under 21, you will have to prove that you are able to make payments, or you will need a cosigner, in order to open a credit card account. Issuers are also prohibited from offering free gifts to these young adults as inducements for signing up for a credit card.
3) Over-the-limit fees are banned unless consumers give issuers permission to allow the transactions that put you over your credit limit. If consumers do not "opt in", then issuers cannot charge you this fee and your transaction may not go through.
4) Your statement must clearly explain how long it will take to pay your balance if you only make minimum payments. It must also tell you how much you need to pay each month in order to eliminate your balance in three years.
"This is one of the best provisions of the bill. It is too easy to pay your minimum amount without calculating how much more you need to pay to get out of this debt. Now the reality of how much you are paying in interest will be clearly stated. Hopefully, this will be an incentive for cardholders to pay more of their balance each month," says Hardekopf.
5) There will be caps on high-fee cards. If your credit card company requires you to pay fees (such as an annual fee, processing fee or application fee), those fees cannot total more than 25% of the initial credit limit. This limit does not apply to penalty fees such as penalties for late payments.
6) There will be changes and standardizations for billing and payments. Your due date should be the same date each month and the payment cut-off time must be 5 p.m. or later on the due date. If your due date is on a weekend or holiday when the company does not process payments, you will have until the following business day to pay.
7) Two-cycle billing will be eliminated. Credit card companies can only impose interest charges on balances in the current billing cycle.
8) Universal default is now prohibited. Issuers can no longer increase a cardholder's APR based on their payment records with unrelated accounts, like a utility bill.
In addition to these provisions, there are several rules that went into effect on August 22, 2009:
1) Your issuer must send your credit card bill at least 21 days (rather than 14 days) before your payment is due.
2) Your credit card company must give you 45 days notice (rather than 15 days) when they plan to increase your interest rate or certain fees (annual fee, cash advance fee, late fee).
3) If an issuer increases your interest rate, you have the right to "opt out" of that increase. You can no longer make any new purchases with that card, but you can continue to pay off your balance at the existing (lower) interest rate for up to five years.
"We have lived with the politics and consequences of this bill for almost two years. It will be interesting to see if these new provisions are helpful for consumers or if the higher rates and fees are the only lasting changes from the CARD Act," says Hardekopf.
