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Credit Card Changes Take Effect
The Credit Card Accountability Responsibility and Disclosure Act of 2009, which was passed in May 2009, is starting to be felt by consumers opening their credit card bills. Although some parts of the law took effect in August 2009 and some do not take effect until August 2010, most became law on Feb. 22, 2010.
The bill is designed to protect consumers from what the FDIC called “abusive fees, penalties, interest rate increases and other unwarranted changes in account terms.” The law seeks to make it more difficult to raise rates or impose penalties and fees, especially without adequate notice. Highlights of the bill include:
The law bans practices that have made it difficult or impossible for consumers to pay their credit card bill on time, thus causing them to have to pay a late fee. For example, credit card companies must allow at least 21 days from the date the bill was mailed until the payment is due; the previous requirement was 14 days.
In addition, credit card payments now must be due on the same date every month, so that consumers don’t forget when their payment is due. If the due date is a holiday or weekend, payment will be due the next business day. Also, credit card companies must accept payments up until 5 p.m. local time on the due date; previously, some companies set early morning deadlines for payment to be credited.
In most cases, credit card issuers cannot increase the interest rate on a credit card during the first year after the card is opened, unless the card issuer was clear when the card was opened that the rate would increase sooner, if the rate is set to some index the issuer does not control, or if the credit card holder does not meet payment obligations.
After the first year, the issuer can raise rates. However, the issuer must give 45 days notice of any rate increase, up from the previous 15 days notice, and can apply the new, higher rate only to transactions made after the rate increase. Credit card holders who opt out of the new rate increase by canceling the card will be able to pay off the balance at the old rates, and will not have to repay everything immediately.
Also, if a card has multiple interest rates, such as a higher rate for new purchases and a lower rate for balance transfers, any payment above the minimum must be applied first to the higher-interest-rate transactions. Previously, many issuers set it up so that card holders paid off the lower-interest-rate amounts first, leaving them with higher-interest-rate balances.
Monthly credit card bills will look different, reflecting the changes. The statement must include a box showing how much the card holder has paid in interest and fees during the current year. It also must warn consumers about the dangers of making only minimum payments, and it must show card holders the monthly payment they would need to make in order to pay off their existing balance in 36 months.
The statements must prominently display the due date for the payment. They must clearly state that late payment can trigger a higher interest rate, and note what that interest rate is.
The new law also makes it more difficult for credit card issuers to target kids. They no longer can issue a credit card to a person under 21 unless that person submits a written application and includes a co-signer, or that person can prove that he has the independent means to pay the credit card debt on his own. And, card issuers no longer can send unsolicited credit card offers to people under 21.
Finally, the law also provides some protections for gift card users. It says that gift cards cannot expire for at least five years, and that gift card issuers cannot charge a fee for inactivity unless the card has not been used for at least 12 months.