What the Credit CARD Act Means for You and Your Wallet

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4 Ways the New Credit Card Law Will Affect You

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:

Interest Rates

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.

Payments

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.

Fees

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:

 

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:

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.

  • Steve Copeland

    As far as I’m concerned, financial institutions have become nothing less than scam artists. They have 1 scam after another all to make more money yet what makes the money produces nothing of value. It’s just money shuffling.

  • Robert

    All this legislation simply caused the CC companies to charge EVERYONE higher interest rates to make up for the loss of revenue…Having paid everything on time and not going over my limit didn’t help…it’s obvious the cause and effect of this legislation was not examined closely and saves the consumer nothing…

  • Heather

    The changes are a good thing. They problem is that the credit card companies and the bank have long gone unchecked and now are going to “sock it” to the consumer, yet again….either through higher interest rates or through another loop hole they will find. It’s a shame.

  • Gladys Rodriguez

    I have a question with regard to what Banks can or cannot do to their customers. Last week I decides to pay off the balance of my mortgage and when the bank sent me an itemized statement, it included $189.00 for late fees. My questions is “can they do that? Why wasn’t I informed when it occurred? I am verifying their information because all stated I payed one day or two day’s after the grace period.
    The late fees were scatered through out the years.

    The transactions were made from one bank to another, but not electronically. In checking the most recent Nov. 16, 2009,

  • Paul Hobson

    This hasn’t really worked in the cardholders favor – the cc companies have just put up everyone’s rate to cover future costs. I have never been late or gone overlimit, but had my rates hiked anyway.

    Why did we need to give them 6 months notice of these changes – should have been made effective immediately to avoid giving the banks time to move the goalposts!

  • Stellarbowler

    This article and others like it make me sick. Credit cards have never been an issue and will not be for the intelligent among us, and apparently there aren’t many. I never give these companies one cent beyond what I charge for something; 38 years of charging and NOT ONE CENT paid in interest. My one card (yes, one card, forever) FREE. No annual fees. No enslavement to debt. Pay the bill off every month, don’t spend what you don’t have, get a no-fee card. Be a debt master, not a slave. Folks, financial savvy is not rocket science. You don’t like the terms? Don’t buy in. You agree, then shut up and pay. Stop whining because you feel you’re being taken advantage of. YOU do that to yourself. It is YOUR FAULT you can’t pay your bills and live beyond your means, and don’t make excuses that what do I do if I lose my job? Please! Cut up the cards. It is YOUR FAULT the companies charge you usurious interest. It is not Congress’ fault. IT IS YOUR FAULT BECAUSE YOU CAN’T MANAGE MONEY. It’s as simple as that. Most people who moan about CC companies are in over their heads and don’t know better. Money management is a life skill; you either have it or you don’t.

  • tws49

    I disagree with Stellarbowler. 38 years ago when he/she got their CC there were great credit deals, I remember that time very well. Interest rates were low, caped, and monitored. The only time you would have seen any 20 – 30% interest was at a Loan Shark, and sooner or later he would have been put in jail. When the financial market was totally deregulated (during the Reagan admin. if memory serves) it left our financial system completely open to human failings. ie. greed, theft, false claims.
    There were no Bernie M.’s It would not have been allowed.
    The world has changed. Now, a CC company can charge you anything they want.
    A financial system this large cannot function correctly without regulation & a watchdog to oversee. Because of one simple human failing… GREED.