Unexpected rate hikes. Over-limit fees. Double-cycle billing. Those are just a few of the credit-card practices that have trapped millions of consumers into a life of constant worry over mounting debt. In less than a week, these practices will be history.
On Feb. 22, 2010, the Credit Card Accountability Responsibility and Disclosure Act (CARD Act) takes effect. It puts forth new rules for credit-card issuers that are arguably the most consumer-protective in the history of credit cards.
If you’re the type of person who reads every piece of mail sent by your credit-card companies, then chances are you already have a fair idea of the changes coming. (Credit issuers have been mailing out change-of-terms notifications that explain the details in recent weeks.)
Then again, credit-card rules are hardly ever simple — and the CARD Act is no exception. Below are the key changes that the new law puts forth, along with some notable exceptions that could still allow consumers to get in trouble with their credit cards.
Finance Charges, Interest-Rate Hikes and Notifications
Exceptions, Caveats, Loopholes:
• Rate hikes are allowed if you’re more than 60 days late with a payment.
• Some banks have already found a way around the rate-hike issue, by increasing card users’ regular interest rates to as high as 29.9% and then refunding a part of that rate for each month that the customer pays on time.
• Double-cycle billing, although prohibited, can technically still exist for credit cards that don’t have grace periods.
• Issuers have been calling consumers asking them to opt in for over-limit fees in exchange for lowering that fee, says Chi Chi Wu, a staff attorney with the National Consumer Law Center, a consumer advocacy group. What they’re not saying is that if people don’t opt in, the transaction will be denied and they will not be charged over-limit fees in the first place, Wu says.
Billing Statements, Payments and Disclosures
• Billing statements must be sent 21 days before the due date.
• Your due date should be the same date each month.
• Payments are considered on time when received by 5 p.m. on the due date or the next business day after a holiday or weekend.
• Payments above the minimum must be applied to the highest-rate balance first.
• Each monthly statement must include information on how long it would take you to pay off your balance if you make minimum payments only and the total you’ll pay, including interest and principal; and how much you need to pay each month in order to pay off your balance in 36 months and the total you’ll pay, including interest and principal.
• Statements must also include a warning that by making only minimum payments you will pay more interest and it will take you longer to pay off your debt, as well as a toll-free number to call if you want to be referred to a credit-counseling service.
Exceptions, caveats, loopholes:
If you make a purchase under a “deferred-interest” plan (such as “No interest for six months,” for example), the company may let you choose to apply extra amounts to the deferred-interest balance. Otherwise, for two billing cycles before the end of the promotional period, your entire payment must be applied to that balance. Carrying a “deferred-interest” balance is a risky proposition altogether, says Wu: Unless the balance is paid in full over the specified period, the company will charge all interest retroactively once the promotional rate expires. “We think deferred-interest plans should have been banned,” Wu says.
College Students and Young Adults
• No credit cards for college students unless co-signed by a parent or they can demonstrate “ability to pay.”
• No credit-limit increases if you are under 21 and have a co-signer without that co-signer’s permission.
• No credit-card marketing and freebies on college campuses.
Exceptions, Caveats, Loopholes:
• Issuers will likely start appealing to parents to co-sign their children’s credit cards. And the Federal Reserve has specified that issuers have the option of keeping the parent on the hook even after the young person turns 21, Wu says. “If that younger person keeps the credit card for 20 years, the co-signer is liable that whole time.”
• Issuers are not allowed to give out freebies for signing up for a credit card on or near a campus — which still allows them to set up shop near popular off-campus venues and offer freebies to everyone, whether or not they apply.
• No rate increases for the first 12 months after opening an account.
• Rate increases can only be applied to new charges.
• Annual and application fees cannot exceed 25% of your initial credit line.
• No more double-cycle billing.
• A six-month minimum promotional-rate period.
• No more over-limit fees, unless the card holder opts in.
• No fees to make credit-card payments online or over the phone, unless you make a payment on your due date.
• Must give 45-day notice of pending rate or fee hikes or any other significant changes to credit-card terms.