Big Changes Are Coming With New Credit Card Laws

Most provisions of the new federal credit card law took effect on Feb. 22. The changes are significant, so you should take time to understand how they might affect you. ...

Here are some of the biggest changes for the average consumer.

1. Retroactive rate increases
Issuers can't raise rates on an existing balance unless a promotional rate expired, the variable indexed rate increased or you paid late by 60 days or more. No longer will they be able to punish borrowers for late payments on unrelated accounts under the practice of universal default or due to "anytime, any reason" clauses.

If the cardholder does trigger the default rate because of a 60-day delinquency, the bank must restore the lower rate once the cardholder demonstrates six months of consecutive on-time payments. This provision became effective in August 2009.

In general, rates can't be raised in the first year after issuance, and promotional rates must last at least six months. Exceptions include expiration of a promotional rate, termination or completion of a workout plan, a change in the index rate or a 60-day delinquency.

Caveat: Issuers can raise rates at any time for any reason on new balances with 45 days' advance notice. Cardholders will still need to read correspondence from their creditors.

2. More advance notice of rate hikes
Consumers get 45 days' notice before key contract changes take effect, including rate increases. Under the current Truth in Lending Act, cardholders only receive a 15-day "heads up." This change became effective on Aug. 20, 2009.

Caveat: This provision doesn't apply to credit limit changes. If your issuer slashes your limit, notification isn't necessary unless the reduction would trigger a penalty, such as an over limit fee.

The new rules also don't cap interest rates. The increased rate can still be triple your existing APR.
Many consumers with low credit limits may face a dilemma if their available credit is near their limit. At checkout, if their purchase will take them over their card limit, the transaction will be declined. Consumers may be sent written agreements by their credit card companies asking them if they will agree to fees if the consumer exceeds their credit limit. Consumers who agree to this "opt-in" feature will be able to make their purchase, but will be charged a fee.

3. Fee restrictions
Cardholders will not face over limit fees unless they elect to allow the creditor to approve over limit transactions. Issuers can't charge more than one over limit fee per billing cycle.

In general, banks can't charge consumers a fee to pay their credit card debt, a cost some cardholders encounter for payments made by telephone or Internet. They can impose a fee to expedite a payment.
Payments received by the due date -- or the next business day, if the bank doesn't accept mailed payments on the due date -- won't trigger a late fee. If the cardholder pays at a local branch, the payment must be credited the same day.

The new law limits fees on "fee-harvester" subprime cards as well. In the first year after issuance, non-penalty fees cannot take up more than 25 percent of the initial credit limit.

4. Restricts card issuance to students
Consumers under age 21 who can't prove an independent means of income or provide the signature of a co-signer aged 21 or older won't get approved for credit cards.

5. Ends double-cycle billing
The new law bans double-cycle billing, the practice of basing finance charges on the current and previous balance. Under this method, the issuer could charge interest on debt already paid off the previous month.

6. Fairer payment allocation
A close look at your card agreement will likely reveal a clause that explains that payments will be applied to lower-rate balances first. Not so anymore. The Credit CARD Act requires above-the-minimum payments to be applied first to the credit card balance with the highest interest rate.

7. More time to pay
Card companies must send statements 21 days before a payment is due. Current law requires a mere 14 days' notice. This provision went into effect on Aug. 20, 2009.

8. Gift card protections
The new law prohibits gift cards from expiring for at least five years. Issuer cannot assess inactivity fees unless the card has gone unused for 12 months.

CCCS recommends consumers pay their monthly credit card bills in advance of the due date; make more than the minimum monthly payment; save money by using online banking and maintain an emergency savings account of at least $1,000 to help pay for any unforeseen expenses.

Consumer Credit Counseling Service
100 Edgewood Avenue Suite 1800 Atlanta, GA, 30303, United States

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