Starting Thursday, August 20, 2009, the first phase of the new Credit Card Accountability, Responsibility and Disclosure (CARD) Act will go into effect. This act gives credit card holders new rights when it comes to interest rate increases and other changes to their credit card agreements. You can read the entire 33 pages of H.R. 627 here.

The CARD Act is being implemented in phases over a 15 month period beginning August 20, 2009. In February 2010, restrictions on interest rate increases, bans on marketing credit cards to young adults and new regulations on gift cards will take effect. On July 1, 2010 a number of new rules regarding the disclosure of fees, rates and terms on monthly statements, credit card applications and mailers will also take effect.

Highlights of changes in the first phase are:

• You must be given at least 45 days notice of changes to your credit card account. Currently, only 15 days notice is required and interest rate changes can go into effect immediately if you default on the account.

• You must be given at least 21 days to pay your monthly bill without the threat of late fees.

• You have the right to opt out of any interest rate increase or increase in account fees.

• You must be notified of your right to cancel when your card issuer mails a 45-day notice of a change in terms. The notice must explain exactly how you can exercise your right to cancel and must include a toll-free number to call and inform you of the deadline for opting out.

• If you opt out, you can no longer make purchases with your card. However, the old, lower interest rate or fee will be applied while you pay off the balance.

• If your card carries varying interest rates for different kinds of transactions (i.e. regular purchases, cash advances, balance transfers, etc.), any payment over the minimum amount due must be applied to the higher interest rate transactions first.

• You will have to opt in to over-the-limit fees. If you opt out, your transaction will be rejected if it exceeds your credit limit. If you opt in to the fees, the transaction will go through but you will be assessed an over-the-limit fee. Over-the-limit fees must be reasonable under the new regulations.

• You must be informed of the effect of making only minimum monthly payments. In particular, how long it will take to pay off the balance should you do so. They must also inform you how much you would need to pay including interest should you want to pay off the balance in 12, 24 or 36 months.

• Your credit card issuer cannot demand you pay your outstanding balance in full.

• Your credit card issuer cannot charge you a monthly maintenance fee on closed accounts, if you reject a change in your account terms.

Be Aware of the following exceptions:

• You cannot opt out of increases in your minimum-payment amount.

• You cannot opt out of increases on your variable-rate credit cards. Variable rate cards rates are tied to an index usually the prime rate. When the Federal Reserve raises interest rates, it raises the prime rate thus increasing the rate on your credit card.

• If you are more than 60 days late paying on your account, you do not have the right to reject rate increases.

• You cannot reject any reduction in your credit limit by your card issuer.

Possible Effects of the CARD Act:

You will find it harder to get a credit card for yourself or your small business. Also, your credit limit will be lower and you will pay higher minimum payments. Interest rates may go higher for everyone even those who pay their bill in full each month. Fixed rate cards may become a thing of the past. The grace period may also vanish causing those who pay their bill in full every month to pay interest for the period between the date of purchase and the end of the billing cycle.

People with bad credit may face reduced limits or not be able to get credit at all. Annual credit card fees most likely will become the norm again as credit card companies seek to recoup lost revenues. Cash-back incentives and other reward programs may be scaled back or eliminated entirely. On the positive side, credit card agreements should become clearer and easier to understand.

Be sure to review your credit card agreement and fully understand it.  How you use your credit card affects your FICO score heavily.  It would also behoove you to review the CARD Act to understand your new rights and obligations.