By: Will Tumulty, CEO of Ready Financial Group
The new Credit CARD Act recently passed by Congress and signed into law by President Obama goes into effect just a few weeks from now on February 22, 2010. The CARD Act contains a number of provisions designed to make credit card disclosures more clear for consumers and to put limits on credit card banks’ ability to change terms and charge certain types of fees.
The law contains some of the biggest changes in the credit card industry in more than 10 years and there are several new rules of which you should be aware. If you have a credit card, or if you’re looking to get one, read below to find out what the law means for you and your wallet.
Here’s an overview:
The CARD Act requires 45-day notice to increase interest rates and the interest rate can’t be changed in the first 12 months unless it was part of a promotional rate. Promotional, or “teaser,” rates have to last for at least six months following the opening of a new account.
Universal default – the practice of raising interest rates based on payment behavior on other accounts – is banned under the new law. The new rules also prohibit increasing the interest rate retroactively on charges already made, although if you’re more than 60 days late on a payment, this provision doesn’t apply. In addition, the prohibition on increasing interest rates doesn’t apply to variable-rate cards where the interest rate is pegged to move with an underlying rate like the Prime Rate.
Finally, if you don’t want to accept a rate increase you’ll have the right to say “no” to the rate increase, pay off your balance and close your card. If you decide to take this option, be sure not to use your card for any further purchases or the new higher rate will apply.
The new law requires statement to be mailed 21 days before the due date; the old rules only required 14 days. This rule is to ensure that people have enough time to get their bill and mail in their payment on time.
Under the new rules, you shouldn’t be charged a late fee if you can prove you mailed your payment within seven days of the due date. When the credit card company receives your payment, it has to be applied to your highest interest rate charge first and you can’t be charged interest during your payment grace period, eliminating a practice called Double Cycle Billing.
In addition to giving you extra time to get your payment in to avoid late fees, there are a few other new fee limitations under the CARD Act. The biggest one requires you to opt-in for over-limit coverage. Over-limit coverage is when the credit card company allows you to make a charge even if the charge puts you over the credit limit on your card – and they typically charge a fee for this.
Under the new rules you need to tell the credit card company that you want them to let you go over-limit and that you’re willing to pay a fee when you do. In addition, the new rules only allow one over-limit fee each billing cycle and set the maximum number of over-limit fees per over-limit occurrence at three (this can happen if you go over-limit and don’t make a big enough payment to get back within your limit for three billing cycles).
Finally, the Act limits the amount of first year fees that can be charged to your card to 25 percent of the credit line. Be aware that this cap doesn’t apply to avoidable fees like late and over-limit fees.
If You’re Under 21
It’s going to be harder to get a credit card. The new CARD Act rules require credit card companies to prove that people under 21 who they give a card to have the ability to make the payments on the card or have an over-21 co-signer jointly responsible for all of the charges made on the account.
The Bottom Line
Establishing and maintaining good credit is more important than ever. Although the new CARD Act rules will make credit card practices more transparent and consumer-friendly, if you don’t have good credit, it’s going to be harder to get a credit card.
To keep your credit in good shape, don’t borrow more money than you can afford to repay and always be sure to make your payments on time. Also, give yourself a credit check-up on a regular basis. You can take a look at your credit report and credit score for free (no strings attached) at Quizzle.com.
More Information on the CARD Act
If you’re interested in digging deeper into the new law, here are a few links that you might find useful:
- Wikipedia: Credit CARD Act of 2009
- Fact Sheet: Reforms to Protect American Credit Card Holders
- Understanding the Credit Card Accountability, Responsibility and Disclosure Act
- Credit CARD Act of 2009
- New Credit Card Rules
Coming up Next
New regulations limiting checking account overdraft fees. Banks charged nearly $40 Billion (with a “B”) in overdraft and bounced check fees last year – ouch! Late last year the US Federal Reserve (aka, “The Fed”) established rules regarding overdraft fees that go into effect in the summer of 2010.
Banks will still be able to charge overdraft fees, but you’ll be able to opt out of some of them. If you’re looking for an account that’s better than checking with no overdraft fees ever, check out Visa prepaid cards at ReadyDebit.com.
Related Articles from the Quizzle Blog:
- Dealing with Debt: Which Debt Should You Pay off First?
- Why You Shouldn’t Wait for a Lower Rate on Your Home Loan
- 10 Common Credit Myths Debunked
- Are Retail Rewards Cards Really Worth It?
- 7 Ways to Improve Your Credit Score
Will Tumulty has over 10 years of experience in the credit card industry as a Vice President at a top five credit card bank and for the past four years as the CEO of Ready Financial Group – a partner company of Quizzle.com that develops cool new financial products to help you save money.