The New Credit Card Law & How It Affects You

On May 22nd of this year, President Obama signed into law the Credit Card Accountability, Responsibility and Disclosure Act. Known simply as the Credit CARD Act (why do they do this??), the provisions attempt to provide more protection for the consumer and rein in some of the more flagrant practices in the credit card industry. Most, but not all, of the provisions favor the consumer.

Below are areas in which major changes will take place as a result of the law.

1. Restriction on Interest Rate Increases

• Prior to this Act, credit card companies could increase your interest rate if you were even one day late on your payments. With the passage of this Act, credit card issuers may not raise rates on your existing balance unless you are more than 60 days late.

• If the cardholder does go beyond the 60-day time frame and has his interest rate increased, the credit card issuer MUST restore the lower rate if the cardholder makes on-time payments for six consecutive billing cycles. However, this provision does not take effect until August, 2010.
  
  
• Unless the card is issued under a promotional rate, rates cannot be raised in the first year of issuance (unless you go beyond the 60-day period mentioned above). Promotional, or teaser, rates must now last at least six months. Currently, there are no time limits for these rates to last.
  
  
• Under the current Truth In Lending Act, card issuers can give cardholders as little as a 15-day notice of rate increases and key contract changes. With the new Act, cardholders must now be given a minimum of 45 days notice of those changes. This provision takes effect August 20th, 2009.
  

Where the Act falls short of further protecting the consumer is on capping interest rates charged by the issuer. The new rules do not cap interest rates. Thus, having a credit card with an interest rate of 25% - 35% is still a possibility for some consumers out there. Additionally, the provisions above do not apply to credit limit changes. Issuers can reduce your credit limits with little or no notice, unless the reduction triggers penalties such as over-the-limit fees.

2. Restriction on Fees

• As a way of avoiding over-the-limit fees, cardholders can instruct their credit card company to decline any charge that would put them over their limit. If the cardholder does not do this and goes over their stated credit line, the credit card company may not charge more than one over-the-limit fee per billing cycle.
  
  
• Fees for taking payments over the phone or internet are eliminated with the passage of this Act. However, fees may be imposed for expediting a payment.
  
  
• Late fees will not be imposed on payments received by the due date, or the next business day if the bank does not accept mailed payments on the due date. If you make a payment at your local bank branch, your payment must be posted and credited on that same day.
  
  
• For those who only qualify to receive sub-prime cards (i.e. those who are considered high-risk to credit card issuers), non-penalty fees cannot account for more than 25% of the credit limit. Currently a card can be issued, say by Capital One, with a $500 credit limit to a high-risk individual. Before the card is even used, it is not uncommon to have the annual fee and even a 'card processing' fee charged to the account. Before the cardholder even signs the back of the new card, that $500 limit is only $375. This new provision limits this practice.
  

3. Restriction on Credit Card Issuance

• Consumers who fall into the ages of 18 to 21 who do not have adequate income or a co-signer, or who do not complete a certified financial literacy course, will not get approved for a credit card. Last year the average college student carried a balance of over $3,000 on their credit card(s), according to a recent Sallie Mae study. This is a record high since the first study was done in 1998. This new provision attempts to protect young adults from becoming a statistic in this study.

4. Restriction on Allocating Payments

• Currently, credit card companies have full control over how they apply any excess payment received on an account. If you have an account with split rates (for example, you took advantage of a special balance transfer rate and you have a separate rate for normal purchases) more times than not they will apply the excess to the balance that is subject to the lowest interest rate first. The Act will require that all excess, or above-the-minimum, payments to be applied to the highest interest rate balance first.

5. Allowing More Time To Pay

• Card companies must mail statements 21 days before a payment is due. Currently the law requires 14 days. This new provision is set to go into effect August 20th, 2009.

Here's The Secret!

After reading through the numerous articles and analysis done on this new Act to post this entry, I think I may have stumbled on the secret to avoiding all of this, and I'm willing to share it with everyone reading this......Want a way to totally become immune from all of this? The solution is quite simple: don't use credit cards!! If you discipline yourself (and your spouse, if married) to adhere to a cash-only mentality, Congress can pass whatever legislation they want in regards to consumer credit card protection and your pocketbook won't feel a thing.

Contrary to popular belief, credit cards are not a necessity in life. Somehow our grandparents found a way to survive in the pre-credit card era. If they could do it, so can you.....nothing has changed except the mentality that credit cards are necessary to survive these days. This is a warped mentality that can easily be changed by actually living within your means and paying cash for everything. Try it out sometime.....it's pretty cool!