It’s been just over a year since the new rules under the Credit Card Act of 2009 became effective. What has changed and what does it mean to you?
The new law creates more clarity for consumers and ends many of the deceptive practices of the past. Here is a summary of the most important provisions:
• No more retroactive rate increases. Picture this scenario: a credit card company entices you to apply for a new card and transfer your balance or offers you ‘free’ checks, encouraging you to create a balance based on interest rates you deem acceptable. Then they retroactively raise your interest rate. As a consumer, you just got caught in one of their most profitable ‘gotcha’s’! You’re forced to pay higher rates because you’re not in a position to pay off your balance. The new law prohibits this unless you’re over 60 days late; your interest rate is tied to a variable interest rate and that rate increases; or it’s the end of a promotional period. If you get caught in the ’60-day’ rule, the card company must restore the lower rate after you’ve made six consecutive months of on-time payments.
• 45-day notice for rate increases. My first point refers to current balances. The card company can increase rates on ‘future’ balances but must give you 45 days notice and this cannot happen during the first 12 months of issuing your card. This means that you could end up with balances that have multiple interest rates attached to them. The new law requires that payments above the minimum payment be applied to the balance carrying the highest interest rate…very consumer friendly! Additionally, if you don’t like the new rate, you can elect to close out your account and you have up to 5 years to pay off your balance under the old terms. In fact, a 45-day notice is required for any significant changes.
• No Over-Limit charges without your permission. In the past if you charged over your limit in any given month, the card company would charge you a fee. Now they cannot do this unless you elect this option and over-limit fees are restricted to a maximum of one per billing cycle. If you do not elect this option and exceed your limit, your charge request may be rejected. In addition, you’ll no longer face a fee for paying your bill through your bank or online.
• More time to pay. Under the old law, your bill could be ‘late’ in as few as 14 days from the mailing of your statement. Now you must have a minimum of 21 days.
• The end to double-cycle billing. Interest charges can only be attached to purchases made during the current billing cycle rather than including charges from the previous cycle as was often the practice under the old law.
New regulations almost always carry a cost. Owning a credit card is likely to cost you more in the form of mandatory annual fees and higher interest rates. In addition, those with lower incomes or poor credit may find they no longer qualify to own a credit card.