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New Credit Card Rules Take Effect Today

This article was written by in Credit. 11 comments.


May 22, 2009 seems like ages ago. That is the date that the Credit Card Accountability, Responsibility and Disclosure (CARD) Act became a law, changing the way credit card issuers interact with their customers. As of today, this law is now fully in effect.

The new regulations are designed to help protect consumers from practices that could be financially harmful. The Federal Reserve calls these practices “unfair or deceptive.”

Here are the main stipulations taking effect today.

  • Credit card companies must give 45 days notice before changing terms, including raising interest rates. They must provide instructions for opting out.
  • Issuers must apply payments to balances with the highest interest rate first. This is a welcome change for consumers. Previously, if you had a promotional rate of 0% for some purchases but a regular rate for others, your payments go to the promotional balance until paid in full, regardless of the timing of the purchases.
  • Double-cycle billing is no longer allowed. You cannot be charged finance charges from a prior statement period.
  • Payment due dates must be the same every month. With one of my credit cards, the due date can fluctuate by several days, from the end of one month to the beginning of another. This should end this practice.
  • Issuers cannot raise the interest rate on existing balances. Most issuers have already gotten around this requirement by changing “fixed” interest rates to “variable” interest rates. Fixed and variable have specific definitions in the industry; “fixed” rates can still be changed at any time while “variable” rates are tied to an index and fluctuate often. There are other exceptions, as well.
  • Customers must opt in to over-limit fees. If you would rather have the ability to charge above your credit limit, you can contact the issuer to allow this feature. Over the past few years, this has been the default, surprising card users who do not monitor their usage.
  • Credit card companies cannot charge extra fees for paying your credit card bill. There is an exception. If you request an expedited (same-day) payment to avoid a late fee, you could be charged a processing fee.
  • Minors will not be able to own their own credit cards. Any customers under 21 years of age must have a co-signer if they want accounts in their own names or show proof of income. Also, credit card marketers cannot use free gifts to lure college students to sign up within 1,000 feet of a campus.

While the industry has complained loudly about these new regulations while they were being debated in Congress, credit card companies have accepted the inevitable. As we’ve already seen, there are certainly ways for credit cards to continue earning revenue through fees and interest. In addition, issuers are keeping a tighter hold on credit, so some are finding it difficult to qualify for new credit cards and existing credit limits are being reduced.

I have no doubts the credit card industry will continue to survive and thrive, even if they have to make life more difficult for their customers. The Credit CARD Act, fully in effect today, helps protect consumers but not without some side effects.

The Credit CARD Act has been a popular topic on the Consumerism Commentary Podcast. Listen to these interviews:

Updated February 28, 2010 and originally published February 22, 2010. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 11 comments… read them below or add one }

avatar Dan

I’ve heard some people say that these new rules aren’t going to do much, but they sure seem fair and reasonable to me.

Some people lament the decline of the 0% APR offer, but quite honestly, I’ll trade that offer for the protections offered above. To me, the single biggest advantage the consumer gains is having their interest rates fixed. Yes, the variable rate sort of circumvents the spirit of the law, and for as much as they might fluctuate often, it’s highly unlikely that somebody with an 11.99% APR will wake up tomorrow with a 29.99% APR. I’ve heard of it happening before this law came into affect, and that’s just wrong. Even fluctuating indexes don’t have that much volatility — and if increasing a few % points during the year materially impacts one’s ability to pay that debt (and make progress on the balance) then I suspect he was just delaying the inevitable anyway.

I’m also happy to see that payments will now be applied to balances with the highest interest rate first. Again, that may reduce the number of 0% APR offers available. However, for those that say they’d rather have the offer under the old ways, remember that you pay a fee of 3% of the transferred balance. That fee used to be capped at a specific dollar amount, but now there’s no limit.

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avatar chris swan

I have heard that some banks now are going to charge fees if you don’t use their credit cards or don’t carry a balance. I know this doesn’t really have anything to do with the new laws, but which banks are doing this practice. I pay mine off every month and sometimes don’t use them for months. Have you heard which banks are doing this?

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avatar Chris

I’m seeing rumors floating around from friends that CC companies can start charging daily interest from day of purchase. AKA, no more pay off in full every month for interest free purchases. I’ve not seen that in any reports however. Just an urban legend?

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avatar Luke Landes ♦127,480 (Platinum)

Chris: Fortunately, what you have heard is incorrect. The Credit CARD Act ensures that no interest will be charged during the grace period, ending the practice of double-cycle billing. You can continue to pay your balance off in full every month without being charged interest.

That’s not true for cash advances and balance transfers. There is no grace period for these types of transactions.

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avatar Chris

That’s what I thought….if this practice changed no doubt there would be an outcry from the consumers! All we’ve heard with this Act is outcry from the banks (and consequently consumers from the increase in rates across the board).

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avatar Single Guy Money

I like the idea of my payment due date being the same each month. It makes it a lot easier for me to remember when my payment is due. I wish they had the rule of minors under 21 not having a credit card w/o a cosigner when I was in college. Probably would have saved me thousands of dollars in debt since I got my first card at 17.

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avatar Smithee ♦1,358 (Quarter)

One of my favorite bits is that statements will now have to show you how long it will take to bring the balance to zero if you only make the minimum payment. Sure, anybody can calculate this for themselves if they want to, but now it’ll be in front of more eyeballs by default.

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avatar Randy

The sad thing is that the Federal Reserve had already slated many of these rules to take effect, but with the new law from congress, the changes were delayed. But of course congress wanted to get it’s name on something.

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avatar Smithee ♦1,358 (Quarter)

Randy, I’m not sure that’s true. From what I can tell, when the Fed tackled this issue, they intended their rules to take effect in July 2010.

http://www.creditcards.com/credit-card-news/what-new-credit-card-rules-dont-cover-1282.php

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avatar Wise Finish

This sounds like a bad deal for people who pay off their balances every month because it sounds like Annual Fees are making a strong comeback.

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avatar Eric

There are a lot more pros than cons.

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