- Personal Finance
How The New Credit Card Laws 2010 Can Help - And Hurt
New Credit Card Laws 2009
There are New Credit Card Laws (2009) designed to help free consumers from spiraling credit card debt. The House Bill H.R. 627 was signed into law by President Barack Obama on May 22, 2009. The new law will take effect on February 22, 2010. I will show you how the new laws are supposed to bring some help to consumers saddled with credit card debt. Sometimes new restrictions also bring unintended consequences, and the new credit card debt laws have a few. The positive provisions in the new legislation are here on this Hub. I have another Hub called The New Credit Card Debt Laws that explores some of the negative consequences and missed opportunities. Read on for the good stuff.
The New Credit Card Laws of 2009 Eliminate Retroactive Rate Increases
The credit card companies won't be allowed to raise rates on your existing balances. The exceptions to this rule are in the event that a promotional rate has expires, the variable indexed rate increases or if you are late on your payments by 60 or more days.
If you have multiple credit cards and have ever been behind on one of them, perhaps you have had one of your other card issuers raise your rate on their card even though all payments to them were on time. This practice is what is known as universal default and it will no longer be allowed under the new credit card debt laws. In the event that you are more than 60 days late on your card and trigger an increase to the “default” rate the bank will be required to restore your lower rate after you've demonstrated six consecutive months of on-time payments.
Promotional, or “teaser” rates are required to be in effect for at least six months. In general, your rate cannot be raised within the first year you have the card except in the event your promotional rate expires, you have a 60-day delinquency or you complete or terminate a workout plan to pay the debt.
The new credit card debt law also requires that you get at least 45 days notice prior to a major change in your contract. This will include rate increases. This changes the current Truth in Lending Act, which previously only required cardholders to receive a 15-day warning of upcoming changes.
Books on Credit Card Debt
No More Handing Out Credit Cards On College Campuses
Under the new credit card debt law if you are a consumer under the age of 21 without proof of a job or you otherwise are unable to show regular, sustainable income, you will not be able to get a credit card unless someone 21 or older can co-sign for you. This is designed to protect young people who often do not have the knowledge or means to properly use credit cards. They often end up saddled with large amounts of debt early in their lives.
A recent Sallie Mae study found that the average college student had a $3,173 balance on their credit cards last year. That figure represents a record high since their first analysis was conducted in 1998. The study also found that more than three-quarters of college students also carry a balance on their cards month to month. I can speak from experience on this one that a credit card at a young age in not a good idea, but it has been a windfall for the credit card companies. I believe this to be one of the most positive provisions in the new credit card debt laws.
The New Credit Card Debt Law Will Restrict Fees
As a cardholder you will not have to face over the limit fees unless you have elected to allow the issuer to approve over-limit transactions through your account. Either way you cannot be charged more than one over-limit fee per billing cycle.
Many credit card companies charge their customers fees to pay their credit card bill over the phone or for payments made via their website. This will not be allowed when the new credit card debt law goes into effect. They are still allowed, though, to charge a fee for expediting your payment in the event you wait until the last minute.
If your payment is received by the due date, or even by the next business day for banks that don't take mailed payments on the due date, you cannot be charged a late fee. If your issuer has a local bricks and mortar branch any payment made there must be credited on the same day.
There have been sub-prime cards out there nicknamed “fee harvesters”. During the first year a consumer has been issued one of these cards the non-penalty fees are not allowed to be more than twenty-five percent of the credit limit.
More Good in The New Credit Card Debt Law
A practice of the credit card issuers where finance charges are based on both your current and previous balances is know as double-cycle billing. This method allowed the credit card company to charge you interest on the amount you owed from the previous month even if it had already been paid off. The new credit card laws will discontinue this reckless activity.
Have you ever transferred a balance to a new card in response to one of those teaser rates? You might have gotten something like 5.99% for one year, but if you charged anything else to the card their regular rate applied to those purchases. If you read the fine print of your agreement, it probably had language in there that payments would be applied to your lower rate balances first. This meant that if you had $5,000 at the lower rate and charged a $100 dinner you would be paying interest on that meal at the higher rate, possibly 18% or more, for the life of your loan. That $100 would continue accruing interest charges and would more than double within five years. Under the new credit card laws if you pay more than the minimum payment it will be applied to your higher interest rates first.
Your statement is now required to be sent 21 days before the payment is due which is an increase from the previous 14 day requirement. There is also a protection in the new credit card debt law for gift cards. It will be required that a gift card will not expire before 5 years, and the issuer can only assess those inactivity fees that hack away at the balance after 12 months have passed.