Understanding New Credit Card Laws Designed to Protect Consumers
2009-2010 Credit Card Laws Updated
While new laws are a big step in the right direction Credit Card companies are already looking at ways to circumvent the process. Credit card companies are being very quick to implement changes before these laws take effect as long as the changes are in the interests of the Banks – the banks which the Federal Government keeps handing out tax money to with little accountability. One thing you can expect for sure as a result of these changes is increased fees.
In May, Congress passed and President Obama signed the Credit Card Accountability Responsibility and Disclosure Act of 2009 - the Credit CARD Act - the most sweeping changes in credit card statutory protections for consumers since the Truth in Lending Act was enacted in 1968. Credit Cards did not exist until 1958 and are now are so ingrained in every day life that we find it nearly impossible to live with out them.
law is intended to help protect consumers from excessive fees, penalties,
interest rate increases and other unwarranted changes in account terms. This
new law will help you better manage your credit cards and avoid unpleasant
While the law generally will take effect on February 22, 2010, some important changes went into effect on August 20, 2009, and others not until August 22, 2010. Here's a look at key provisions.
Prohibitions and restrictions on rate increases: Starting on February 22, 2010, card issuers generally can not increase the Annual Percentage Rate or APR (the cost of credit expressed as a yearly rate, including interest and other expenses) on existing balances for one year after the account is opened except in these four situations:
(1) When the bank disclosed, at the time the account was opened, that the APR would increase sooner;
(2) When the APR for a variable-rate card changes due to increases in a published index that is outside the card issuer's control, such as rates on U.S. Treasury securities;
(3) When the APR, fees or finance charges increase as a result of not satisfying the consumer a "workout" arrangement (a debt reduction or other concessions agreed to by a card issuer to help a struggling borrower); gold
(4) When the APR, fees or finance charges increase due to the consumer not making the required minimum payment within 60 days.
After the first year of the account, the card issuer can raise a consumer's interest rate, but the higher rate can only apply to new transactions and it can not exceed the potential interest rate increase previously disclosed to the cardholder.
The card issuer also must generally provide a 45-day advance notice of any rate increase or any other significant changes in account terms, up from 15 days. This requirement of the law takes effect on August 20, 2009. In that same record, card issuers must inform consumers of their right to cancel their card before the rate increase or account changes take effect. Consumers who decide to cancel their card at the Will Repay "old" (lower) rate, and they can not be immediately required to Repay the outstanding balance.
In addition, starting August 22, 2010, and at least every six months, card issuers must review interest rate increases dating back to January 1, 2009. As part of that review, the lender must review the risk factors that led to the rate increase and Reduce the APR going forward, if appropriate. And if the card issuer instead believes an increase in the APR is warranted, it must provide the customer with a written notice explaining the reasons..
Card issuers also generally can continue offering low introductory rates - more commonly known as "teaser rates." But beginning February 22, 2010, these initial rates must be disclosed in a clear and conspicuous manner and can not increase until after the advertised period, Which must be at least six months.
New limits on fees and interest charges: One of the most important changes requires that monthly statements be mailed or delivered at least 21 days before the payment due date, an increase from 14 days. This provides consumers more time to pay the bill before incurring late fees or additional interest charges if there is a grace period. This provision of the law took effect August 20, 2009, and applies to all open-end credit, including credit cards and home equity lines of credit.
Other important changes effective February 22, 2010, promotes fairness in the way card companies handle consumer payments:
- For multiple cards with interest rates - for example, a low rate on a balance transferred from another card and a higher rate on new purchases - card companies will be required to apply payments (the portion over the minimum payment) to the highest-rate balances first. This Will Eliminate a current practice of some card issuers that apply a consumer's payment toward balance with the lowest rate first and leaving the highest-rate balance to continue accruing interest costs. Other requirements govern how card payments will be applied in cases of deferred-interest plans - those that do not begin to increased interest for several months after a purchase.
- Double-cycle billing - an often costly practice also known as two-cycle billing - will be banned. With double-cycle billing, a card company not only CONSIDERS the current balance on the credit card interest charges when Determining goal also factors in the average daily balance from the previous billing period, even if a portion of that previous balance was paid.
"Double-cycle billing results in higher interest charges for consumers who carry a balance from one billing cycle to the next," said Pawelski. "The new law bans this practice by permitting interest charges to apply only to outstanding balances and not to previous balances already paid."
Improved disclosures: Also starting on February 22, 2010, credit card issuers Must provide new, clearer and more timely disclosures of account terms and costs - before and after an account is opened. This will help consumers choose the right card, shop for better deals and avoid mistakes.
Monthly credit card statements will be changing significantly. Card statements must include a box cardholders showing how much they have paid in interest and in fees during the current year. Statements will also include details warning consumers about the high costs of making only the minimum payment.
To further help cardholders plan how to Repay outstanding balances, the law will require statements to show the monthly payment amount required to pay off the existing balance in 36 months, including the total cost (and interest payments).
Periodic statements must also disclose, in a prominent location, the due date for the next payment as well as the amount of any potential late fee and the date it would be charged. Statements must also include a notice that one or more late payments may trigger an increase in the interest rate on the account, and they must show the penalty rate.
Finally, consumers may benefit from a requirement that companies post their card standard credit card agreements on the Internet. This is intended to make it easier for consumers to compare the different terms of credit cards and understand the interest rates and fees that are being charged.
Other Changes to Credit Card Billing Practices
- Fair deadlines for credit card payments: Starting on February 22, 2010, the due date for card payments must be the same day each month. This change is intended to Prevent consumers from incurring late fees as a result of accidentally missing a due date Because it changes from month to month. If the due date falls on a holiday or weekend, the deadline is Considered to be the next business day. Also, card companies must accept and promptly post payments received by 5 pm (local time) on the due date. They can no longer, for example, have early morning deadlines for payments to be credited on the due date.
- Restrictions on penalties for going over the credit limit: Effective February 22, 2010, no fees may be imposed for making a purchase or other transaction that would put the account over its credit limit unless the cardholder "opts in" (Chartered) for the credit card company to process over-the-limit transactions and charge a fee. Furthermore, an over-the-limit fee may be imposed only one time during the billing cycle when the limit is exceeded, not for each transaction that exceeds the credit limit. And if the cardholder remains over his or her limit order conducts no additional transaction fee another purpose can be imposed only once during each of the next two billing cycles.
- Protections for young consumers: Also as of February 22, 2010, companies will be prohibited from issuing a credit card to a consumer younger than 21 unless he or she submits a written application that includes the signature of a co-signer or information over 21 indicating the young consumer has independent means to Repay the card debt. Also, companies are restricted from making pre-screened offers of credit to someone under 21 unless the consumer consents to receive them. "These provisions are intended to protect college students and other young people from amassing significant credit card debt without the financial resources to pay them," explained Alice Beshara, Chief of the FDIC's section that monitors banks for compliance with consumer regulations.
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