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:

• Samir Kothari, CEO of BillShrink, January 31, 2010
• Heather Booth, Executive Director of Americans for Financial Reform, November 29, 2009
• Dr. Robert Manning, author of Credit Card Nation, August 2, 2009
• Liz Pulliam Weston, MSN Money, May 10, 2009

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