What Will New Credit Card Regulations Mean for You?Remar Sutton, DCU StreetWise National Spokesperson
Late August 2009 saw the launch of the first of the new credit card rules designed to protect consumers. They are part of the Credit Card Accountability, Responsibility and Disclosure Act of 2009, often called the Credit Card Act 2009. The remaining regulations take effect in February 2010. The goal of this legislation is to provide new protections for consumers by providing for better disclosures about credit card terms and curbing some of the worst practices of the credit card industry. Meanwhile, many credit card issuers are busy making changes to protect their interests and profits before the new rules take effect. What do the new regulations and card issuers’ actions mean for you and your use of credit and credit cards? This review gives you a preview.
A few preliminary protections took effect in August
The new rules that launched on August 20 primarily try to ensure that consumers receive adequate notice of changes in account terms and have adequate time to pay accounts on time. Following are the main items:
Issuers must notify customers 45 days in advance (up from 15 days) of any “significant” changes to the terms. Such “significant changes” include these:
Billing statements must be mailed or delivered electronically at least 21 days before the due date. The goal is to provide consumers adequate time to make payments on time and avoid late fees. The previous term of 14 days allowed was so short that many customer got caught by “gotcha” late fees.
A grace period must be at least a 21 day period extending from when the statement is mailed. Not all cards have grace periods. A grace period is the time after a purchase during which no interest is charged. The advantage of a grace period is typically that you pay no interest on purchases is you pay off your balance in full at each statement.
These additional protections take effect in February 2010
The regulations that take effect on February 22, 2010, place a wider range of restrictions on card issuers with the goal of better protecting card users from deceptive or unfair credit industry practices.
Restricts retroactive rate increases on existing balances. Raising the interest rate on existing balances for “any time/any reason or because you may have been late on another credit account (the practice of universal default) is prohibited. Interest rates can be raised if you have made a payment late by 60 days or more after the due date, but the issuer must give you forty-five days notice and the option to cancel. After any interest increase, the issuer must periodically review your account with an eye to reducing the rate if you qualify. If the increase was caused by your late payment, then after you have paid on time for six months, under the new law, your interest rate should be reduced to its original, lower rate.
On new accounts, prohibits increases in interest rates and fees during the first year after a credit card account is opened. If the new account has a promotional rate, it must last six months and all terms for the account must be clearly disclosed when the account is opened.
If you opt to close an account, the issuer can not require immediate repayment of your balance. The card issuer must define the repayment plan as either of the following:
If a charge would put you over your credit limit, you must be informed immediately and asked to “opt in” to the over-the-limit charge. Opting in this case constitutes your okay to over-the-limit fees. This means the card can be refused if a purchase would exceed the limit. Over-the-limit fees can be charged only once per billing cycle if the balance is above the credit limit on the last day of the billing cycle.
No fees are allowed to make a payment online, by telephone, by mail, or any other means. A payment fee is okay for an expedited payment arranged live through a service representative.
Payments on a single account must be allocated first to balances with higher interest rates. Payments that exceed the minimum payment must be applied to the balance with the highest interest rate. The exception is during the last two billing statements before a deferred balance is due. In this case, the excess payment must be applied to the deferred balance.
Payment due dates must be consistent and fair. Issuers must credit all payments received by 5pm on that day. Due dates must be on the same day each month, for example the 4th or the 15th. If the payment due date falls on a weekend, holiday, or other non-business day, the payment can not be considered late if received on the next business day. The date a payment is made at a local branch (if payments are accepted at local branches) will be considered the date the payment is posted.
Billing statements must include repayment disclosures. Statements must include:
Current marketing of credit cards to college students is curtailed. To prevent current deceptive practices of blanket marketing to college students regardless of their ability to pay, credit cards may not be issued to anyone under age 21 unless there is a co-signer over age 21 or the under-21 applicant provides information indicating s/he can pay the bill.
What the new credit card rules don’t do
Although the new credit card rules provide many much-needed protections for consumers, they don’t mean that credit cards will be easier to get or cheaper. Instead, the opposite is likely, particularly given the fact that the U.S. economy and businesses are still working to recover from the recent credit crisis.
The new rules also do not prohibit card issuers from lowering credit limits or canceling accounts no matter how responsible the card holder has been or how good their credit if the card company judges that those actions benefit them. In fact, in anticipation of the new rules, some issuers are already taking such steps.
Watching for “Pre-emptive” actions some card issuers are taking now
Some card issuers are taking “pre-emptive” action before the new rules take effect. And they aren’t targeting just customers with the poorest credit record; responsible customers with great credit are also experiencing some of the following problems. Your best protection is to carefully read every communication you get from your credit card companies so that you can act if necessary. Pre-emptive moves by card issuers include:
Check out DCU's Visa Cards
If you haven't checked out DCU's Visa Cards, now is the time. DCU offers several Visa Cards with a low variable interest rate that is well below the national average, no annual fee, a 25 day grace period, a generous rewards programs, and other benefits.
For more information
Consumer Action Fact Sheet: New credit card provisions
So, what do you think?
If you find this review helpful, please pass the word to your friends. Also email me with any comments or suggestions.
Remar Sutton
Prepared by Remar Sutton and Associates for DCU, August 2009. All rights reserved.
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