Were you aware of some of the more questionable practices by credit card issuers? I was surprised to find out what every credit card holder should know and even more surprised to find out what the new laws regarding credit cards do to protect consumers.
Credit card practices have long been labeled as unfair and even deceptive. President Obama has signed into law the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 and the new credit card laws are now in effect.
“With this new law, consumers will have the strong and reliable protections they deserve. We will continue to press for reform that is built on transparency, accountability, and mutual responsibility – values fundamental to the new foundation we seek to build for our economy,” President Obama said.
What do the new credit laws mean to you?
-Credit cards users will avoid retroactive rate increasing on existing balances and there will be limited interest rate hikes allowed, including when a promotional rate ends, there is a variable rate or if the cardholder makes a late payment.
-Interest rates on new transactions can increase only after a year.
-Significant changes in terms require 45 days notice instead of the industry practice of 15 days notice. If consumers don’t’ agree to the new rate, they can cancel the credit card and pay it off at the existing rate.
-Consumers will get more time to pay credit card bills with a reasonable amount of time being considered at least 21 days after the bills are mailed. Consumers who complained about due dates changing or being moved up and increasing the likelihood of late fees have been heard.
-One trick credit card issuers have used in the past is to have an early morning due time on the due date. Under the new law, a due time earlier than 5:00 will be illegal. Payments due on weekends or holidays would not incur late fees.
-No more universal defaults. What is universal default? Universal default is the practice of raising interest rates on cardholders based on their payment records with other credit issuers. In other words, if you paid your utility bill late, your credit card company could raise your credit card interest rate but no more.
-Under the new credit card laws any payments over the minimum due must go toward the purchases with the highest interest rates. For example, some consumers have accounts that offer different services for different products such as ATM withdrawals, cash advances, regular purchases or balance transfers. In the past, credit card issuers have been applying payments to the lowest interest rate products first.
-Consumers also have an option to avoid over the limit fees. Consumers can “opt” to have the option and pay the fee or “opt out” and have the transactions rejected and avoid the over the limit fees.
-Double cycle billing will be a thing of the passed. Charges on outstanding credit card balances would be calculated based on purchases made in the current cycle rather than going back to the previous billing cycle to calculate interest charges. The double cycle, or two-cycle billing penalizes consumers who pay off their balances, because they are hit with finance charges from the previous cycle even though they have paid the bill in full.
-Consumers who get subprime credit cards and are charged account-opening fees that use up their available balances would get some protection under the new credit card law. These upfront fees cannot exceed 25 % of the available credit limit in the first year of the card.
-Credit card issuers will now be required to make consumers aware of the consequences of making only minimum payments each month and how long it would take to pay off the entire balance with only minimum monthly payments. Issuers must also provide information on how much consumers must pay each month if they want to pay off their balances within 12, 24 or 36 months.
It all sounds good doesn’t it? Is there a catch? Consumers advocates have been all for it. Credit card issuers and credit industry analyst say the new credit card laws will end up making credit cards more costly to consumers and less accessible for low-income families. They’ve argued that at a time when the country needs Americans to spend more to stimulate the economy that credit cards will be used less.
Credit card companies and credit card issuing banks, including American Express Company and Citigroup Inc., are already making changes to counter the new laws in their favor. Credit card companies are raising interest rates and fees across the board and have already started mailing warnings to consumers about fee and interest rate increases.
More clauses of the Credit Card Accountability, Responsibility and Disclosure Act of 2009 will come into effect in 2010.
What are you seeing in your mailbox? Have you already received a rate increase notice from your credit card company?