In this day and age, most of us rely on some form of Credit to get us through the tough times. Even shopping for the things we need from day to day has some of us giving our plastic a little more of a work out than usual.
Last spring, President Obama signed the Credit CARD Act of 2009 into law to help de-mystify some of the terms and conditions credit card issuers have used to take advantage of consumers and to help consumers better understand their credit.
At a high level, the new credit card law means that millions of credit card users can avoid retroactive interest rate increases on their current credit card balances, have more advance notice of any changes to their existing credit card terms and conditions, and can opt out of significant changes in terms on their existing credit accounts.
The law is being implemented in phases – one already went into effect in August of 2009, and a big phase that went into effect yesterday – February 22, 2010 are just two.
Here are some of the changes you can expect to see and what they mean to you as a consumer:
A Limit on the Terms of Interest Rate Hikes: Increases on existing interest rates will be allowed only in limited circumstances. Interest rates on new transactions can only be increased after the first year, and any significant changes in terms on accounts cannot occur without 45 days’ advance notice to the account holder of the impending changes.
A Limit on the Terms of Universal Default Practice: Raising the interest rates of card holders based on their history of payment with other creditors and utility companies would end for current credit card balances, however creditors would still have the ability to use universal default on future balances if they give the card user at least 45 days of advance notification.
A Right to Opt Out of Changes: Consumers can decline, refuse, or opt out of certain significant changes in terms on their accounts by agreeing to close their accounts and paying off the balance under the old terms. Card holders have at least five years to pay off the balance on the closed account.
Limited credit to young adults: Under the new law, credit card issuers will not be allowed to issue new cards to anyone under the age of 21 unless that person has an adult-co-signor, or the applicant can show proof of enough income to repay the card debt that would be incurred. Card companies are to remain at least 1,000 feet from college campuses if part of their marketing strategy is to incentivize students with free gifts for applying.
Increase in Time to Pay Monthly Bills: Due dates would be about 21 days after statements are mailed or delivered, giving consumers more time to pay before accruing late fees.
Cut and Dry Due Dates: Cut-off times set before 5 pm on the payment due dates would be illegal. Late fees for days when due dates fall on weekends, holidays or when the credit issuer is closed would be dropped.
Highest Interest Balances First: If you have more than one interest rate on a credit card for different types of purchases (i.e., cash advances vs regular purchases), any payment exceeding the minimum amount due would be applied to toward the higher interest rates. Can you believe that the current practice is to apply all amounts over the minimum monthly payments to the lowest-interest balances first; extending the amount of time it takes to pay off higher interest rate balances and allowing creditors to pinch more interest out of their consumers.
Over-limit Opt In: Consumers must “opt in” to over-limit fees. If you don’t opt in, your card will be declined when it hits the limited instead of charging you an over-limit fee you might not know about until you get your bill.
Transparency on Minimum Payments: Credit card issuers must inform consumers of the consequences of making only minimum payments each month. Issuers must provide information on how much users must pay each month if they want to pay off their balances in 36 months, including interest. Information must also include how long it will take you to pay off the entire balance and interest if you are only making minimum payments.
These are just a few of the changes being made, however it’s important to note that though the law was created to help consumers, credit card issuers are already searching for ways to get around the law. The best protection you can have is to read everything, including the fine print, and understand the impact of each credit transaction you make.
Happy Shopping and Saving!
Vivienne Tyler
Marketing Manager
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