In May 2009, Congress passed the Credit CARD (Card Accountability, Responsibility and Disclosure) Act to regulate how credit card lenders charge and communicate with consumers. Generally, the new law should provide great relief to consumers. It requires credit card lenders to make terms, rates and fees much clearer, and it eliminates the surprise interest-rate hikes that caused headaches for card holders in the past.
While a few of the law's provisions took effect in August, most will go into effect in February 2010. The law has been in the news this fall as some lawmakers sought to move up that effective date, arguing that credit card companies used the time between the bill's passage and its implementation to raise interest rates, charge extra fees and cancel accounts — actions they won't be allowed to take when the law is in effect. That proposal, however, was killed in late November.
Amid all these changes and confusion, here's what you need to know to understand how the law affects you now:
- Beware of bank fees. Some experts estimate that bank fees will increase by as much as 50 percent as banks attempt to make up for lost revenue after the act takes affect. Read through any fee disclosures your bank, credit card lender or credit union sends you. If a notice alerts you to a fee that you disagree with, read on to see if you can opt out of the fee. If fees are serious enough, you may wish to consider changing your account to a different financial institution.
- Watch your rates. The new law places restrictions on how much credit card companies can raise interest rates. That means lenders are raising rates now, while they can. Previously, lenders could raise interest rates at any time. One of the act's first provisions, which took effect in August, said lenders can only raise rates with 45 days notice to the card holder. Card holders can avoid paying higher rates by closing their card. However, if card holders use the card more than 14 days after the notice is sent, the higher rates will apply to those charges.
- Longer turn-around for payments. As of August, card issuers must allow at least 21 days from when they mail a bill for the payment to be due. That means it will take longer before late charges can begin to accrue, and you have a more reasonable time frame to pay. Also, a credit card's due date will be on the same date each month.
- Educational credit information. Soon, the Federal Reserve Board will issue guidelines on a toll-free number for credit counseling assistance and will report to Congress about financial literacy programs. If you're in deep debt, watch for new ways to get help.
- Some relief on late payments. The act requires card issuers to wait until payments are 60 days late before charging penalty interest rates. Chronic latepayers will still face higher interest. As of February, though, borrowers whose payment barely missed a deadline will not be able to be hit with sky-high interest rates. What's more, penalty interest rates will only apply to new purchases, not to existing balances — and if you pay on time for six months in a row, the interest rate must revert to the original rate. In addition, card issuers can't raise interest rates on their card just because you were late on another card.
- Harder for young borrowers to get a card. By February, borrowers under age 21 will be unable to open a credit card account unless they provide a co-signer or proof of sufficient independent income to repay debt up to their credit limit. This will affect some service members, but most should be able to obtain a credit card based on income. It's important to use these cards carefully to build a positive credit history.
- Not so easy to go over-limit. Credit cards can't charge over the credit limit unless card holders request that the account be allowed to go over-limit, with accompanying over-limit fees. (Effective in February.)
- Two-cycle billing is out. Two-cycle billing means monthly finance charges are based on the average balance in each of the two past months. Beginning in February, card lenders can charge financing fees only on the most recent month's balance.
- Ability to repay will be considered. Effective in February, lenders must consider a borrower's ability to repay the debt before approving a card or raising credit limits. This will help borrowers stay within healthy debt limits, but it also is likely to limit credit available to consumers.
The new law offers important consumer protections. Most people will be able to breathe a sigh of relief that the credit card issuers are dealing more fairly and openly with all customers. Take a cue from the law to build a healthy financial profile today and in 2010.
For more tips on becoming fiscally responsible, visit Military.com's Finance Channel.
