President Obama signed the Credit CARD Act of 2009 into law May 22, 2009. The new rules have taken effect since February 22, 2010. What do the new rules mean for cardholders? Here are some of the key changes of the new rules you may want to know.
No Interest Rate Increases For the First 12 Months Of Your Credit Card: You can enjoy your interest rate for at least the first year after opening your new account with two exceptions. First, your rate could increase in the first year if the creditor disclosed a rate increase when you opened the account. Second, if you don't make the minimum payment within 30 days of the due date you'll be subject to a penalty rate increase.
No Interest Rate Increases On Pre-Existing Balances: If your interest rate increases, the credit card issuer cannot retroactively apply the increased rate to existing balances. Only purchases made after the increase goes into effect will be subject to the new interest rate.
Rate Increases Require 45-Day Advanced Notice: The time of notifying you of an interest rate raise increases from 15 days to 45 days. The increased time for an advanced notice will give you more time to respond to an interest rate increase.
No Advance Notice of Minimum Payment Increases: The Federal law does not require credit card issuers to send advance notice of minimum payment increases.
No Double Billing Cycle Finance Charge: The double billing cycle method of calculating finance charges allows credit card issuers to charge interest on balances you've already paid. The Federal Reserve has outlawed this expensive practice.
Limits on Over-the-Limit Fees: An over-the-limit fee can only be charged once in a billing cycle and only for a total of three consecutive billing cycles unless you pay your balance below the credit limit and go over it again or you get a credit limit increase and exceed the new limit.
Limited Fees for Subprime Credit Card: Subprime credit cards can no longer charge up the cardholder's credit limit with fees. Now, fees are limited to 50% of the credit limit, but only 25% of those can be charged when the account is opened. The remaining fees must be spread over at least five billing cycles.
Billing Statements Must Be Sent 21 Days Before Payment Due Date: A "reasonable time" limit of sending billing statements in the old rules is specified as 21 days in the new rules.
Payments Above The Minimum Are Applied To Highest Interest Rate Balances: The minimum payment would go toward your low-rate balance, while the remainder of your payment must be applied to the balance with the highest interest rate. This reduces your interest cost over the life of the credit card versus the alternative of applying the complete payment to the low rate balance.
Billing Statements Must Detail Cost Of Making The Minimum Payment: Credit card issuers are required to list the number of months it will take to pay off your balance with minimum payments along with the total interest you'll end up paying.
The Right to Opt Out: Consumers now have the right to opt out of certain significant changes to terms on their accounts. It means that cardholders agree to close their accounts and pay off the balance under the old terms. They have at least five years to pay the balance.
Clearer Due Dates And Times: Credit card issuers are no longer able to set early morning or other arbitrary deadlines for payments. Cut-off times set before 5 p.m. on the payment due dates are illegal under the new credit card law. Payments due at those times, weekends, holidays or when card issuers are closed for businesses are not subject to late fees.
Universal Default Is Banned: Universal default is a credit card policy that allows a creditor to increase your interest rates if you make a late payment on any of your credit card accounts (without regards to the creditor). For example, creditor A can increase your interest rate even if you do not make any late payment on your account at creditor A, but make a late payment on your account at creditor B. Universal default clauses were banned under the CARD Act. Credit card issuers are no longer allowed to use this practice to increase cardholder interest rates.
Length Of Promotional Rates: Promotional rates need to be in effect for at least six months from the beginning date of that promotion.
Advance Notice for Account Closure: Creditors need to provide a 30-day advance notice of an account closure.
No Telephone Or Web Fees: Creditors are prohibited from charging a fee to make telephone and web-based payments. However, a fee may be charged for expedited telephone payments made on the due date or the day before the due date.
No Interest Rate Increases For the First 12 Months Of Your Credit Card: You can enjoy your interest rate for at least the first year after opening your new account with two exceptions. First, your rate could increase in the first year if the creditor disclosed a rate increase when you opened the account. Second, if you don't make the minimum payment within 30 days of the due date you'll be subject to a penalty rate increase.
Clearer Due Dates And Times: Credit card issuers are no longer able to set early morning or other arbitrary deadlines for payments. Cut-off times set before 5 p.m. on the payment due dates are illegal under the new credit card law. Payments due at those times, weekends, holidays or when card issuers are closed for businesses are not subject to late fees.