2010 is sure to bring changes into our lives. One such change is the “new credit card law.” This law essentially requires more detailed notice to the card holder and requires the card issuer to be more up front and consistent in its actions. This is an extremely relevant issue since so many have to depend on their credit cards for everyday expenses. Many of my clients have been victims of unanticipated credit card rate increases, even when they were current on their payments. Apparently this was a growing concern with the powers that be and, as such, The Credit Card Accountability Responsibility and Disclosure (C.A.R.D.) Act (“Act”) of 2009 was created to provide protections from abusive credit card practices. Some parts of the Act went into effect August, 2009 and the rest are effective either Feb. 22, 2010 or August, 2010. This article will briefly touch on some of the protections contained in the Act. If you need more information I recommend you visit www.consumer-action.org.
NEW ACCOUNTS : Under the Act, creditors generally cannot raise interest rates or any fees during the first year an account is opened except: (1) When the increase is due to a variable indexed interest rate; (2) at the end of a promotional rate period; and/or (3) when the required minimum payment is not received within 60 days of the due date. If there is an increase, the card holder must be given 45 days advance notice and an option to cancel the card, as well as the reason for the increase. Additionally, the notice must explain that the increase will end within six months if the card holder makes all payments on time.
NOTICE OF RATE INCREASES: After the first year, the card issuer can raise the interest rate on future purchases (those made after the rate increase), or make other “significant” changes in terms with 45 days advance notice. Again, this advance notice must advise the card holder that they have the right to cancel the account. No notice is required for changes to variable and promotional interest rates.
RATE INCREASES ON EXISTING BALANCES: Even after the first year of an account’s opening, card issuers cannot raise interest rates on existing balances, except: (1) when the increase is due to a variable indexed interest rate; (2) at the end of the promotional rate period, provided that proper up-front notice was given and that the promotional period is at least six months. (No notice required when
introductory rate expires.) (3) if the required minimum payment is not received within 60 days after the due date. As mentioned above, the card holder must be given 45 days advance notice and option to cancel and be given the reason for the interest rate increase and told that the interest rate increase will terminate within six months if the creditor receives the minimum payments on time during that period.
OUTSTANDING BALANCE PAYMENTS: If the card issuer changes the terms of the card, it is required to explain that the card holder can cancel the account before the effective date of any change. If the card holder decides to close or cancel the card, the closed account will not be considered a default and the card issuer cannot require immediate repayment of the entire balance. In the case of a closure or cancellation, the card issuer must either: (1) structure the balance to be paid over at least five years; or (2) require a minimum monthly payment equal to a percentage of the balance that is no
more than twice the percentage required for the old minimum payment. If you do elect to close the account, you can’t be forced to pay off your balance all at once. However, banks can set up a schedule that guarantees the balance will be paid off within five years, at the old interest rate.
FEES AND PENALTIES: No over-limit fees may be charged unless the card holder has given permission for transactions that exceed his or her credit limit. An over-limit fee may be imposed only once per any billing cycle in which the balance is over the credit limit. Additionally, penalty fees (late fees, over-limit fees, etc.) must be reasonable and proportional. What is considered “reasonable” has not yet been determined. Additionally, banks will be prohibited from charging overdraft fees on ATM and debit card transactions unless consumers have given their informed consent to use overdraft services. You cannot be charged an “over-limit” fee unless you affirmatively opt-in.
PAYMENT DUE DATES: These are extremely important to be aware of since they are the things that impact your credit report most. Pay attention to your bill and make sure the card issuer is following the following rules: (1) card issuers must mail/deliver the billing statement at least 21 days before the due date; (2) card issuers must credit payments received by 5 p.m. on that day; (3) due dates must be on the same day each month; (4) if the payment due date falls on non-business days, the creditor cannot consider payments received on the next following business day to be late; and (5) if a creditor accepts payments at local branches, the date payment is made at the branch will be considered the date the payment is posted.
PAYMENT ALLOCATION: Amounts in excess of the minimum payment must be applied to the balance with the highest interest rate, except during the last two billing statements before a deferred interest balance is due, where excess payments must be applied to the deferred balance.
UNDER 21 YEARS OLD: Gone are the days of card issuers hanging out on college campuses and duping naïve college students into signing up for credit cards with high rates in exchange for a t-shirt or a free pizza. Under the Act, before issuing a card to someone under 21, the issuer must obtain an application, which contains either: (1) the signature of a co-signer over 21 who will be jointly liable for debts; or
(2) proof the under 21 year old can pay for the card themselves. Additionally, the card issuers cannot raise the credit limit without written permission from the co-signer and cannot provide tangible gifts (having monetary value) to college students on or near campus in exchange for applying for credit.
CREDIT REPORTS: Every person is entitled to a free credit report every 12 months from each of the three nationwide consumer-reporting agencies. Free credit reports are available under federal law at annualcreditreport.com. Additional copies can be ordered for a small fee.
With all of the above changes, we are sure to see the card issuers making changes in order to continue to make money. To start, I anticipate the card issuers will charge annual fees and will revamp their rewards programs. It is also likely that the card issuers will disguise and attempt to hide the required notices in packages that look like “junk mail.” So, I recommend that you review your credit card statements, familiarize yourself with the above changes and read everything you get in the mail or via email. Although the lenders are finally being held accountable for their actions, you need to continue to be responsible and diligent.