Everything You Ever Wanted to Know About the New Credit Card Laws But Were Afraid to Ask

by Mike on February 3, 2010

“I want to be clear: We do not excuse or condone folks who’ve acted irresponsibly.” – Barack Obama

ADVANCE NOTICE OF INCREASE IN INTEREST RATE REQUIRED- In the case of any credit card account under an open end consumer credit plan, a creditor shall provide a written notice of an increase in an annual percentage rate (except in the case of an increase described in paragraph (1), (2), or (3) of section 171(b)) not later than 45 days prior to the effective date of the increase.

Translation: The credit card company must give you at least 45 days notice if they plan on raising your interest rate (annual percentage rate or APR). Furthermore, the credit card company must let you know (in plain English, not lawyer speak) that you have the option to opt-out of the new rates. Opting out means you’ll surrender your rights to use the credit card and will pay off the card and it will be closed.

PROHIBITION ON ISSUANCE- No credit card may be issued to, or open end consumer credit plan established by or on behalf of, a consumer who has not attained the age of 21, unless the consumer has submitted a written application to the card issuer that meets the requirements of subparagraph.

APPLICATION REQUIREMENTS- An application to open a credit card account by a consumer who has not attained the age of 21 as of the date of submission of the application shall require–

i. the signature of a cosigner, including the parent, legal guardian, spouse, or any other individual who has attained the age of 21 having a means to repay debts incurred by the consumer in connection with the account, indicating joint liability for debts incurred by the consumer in connection with the account before the consumer has attained the age of 21; or

ii. submission by the consumer of financial information, including through an application, indicating an independent means of repaying any obligation arising from the proposed extension of credit in connection with the account.

Translation: If Jr. wants a shiny new credit card when he goes off to college, he needs to ask mommy or daddy OR be able to prove that he is financially able to repay any credit extended.

Personally, as one of many undergrads who racked up a few thousand dollars in credit card debt, I welcome this restriction. However, Baker from ManvsDebt makes a strong point when he states 18 year olds now require co-signer to obtain credit cards, yet still maintain rights to catch bullets with their face.

INDUCEMENTS PROHIBITED- No card issuer or creditor may offer to a student at an institution of higher education any tangible item to induce such student to apply for or participate in an open end consumer credit plan offered by such card issuer or creditor, if such offer is made–

(A) on the campus of an institution of higher education;

(B) near the campus of an institution of higher education, as determined by rule of the Board; or

(C) at an event sponsored by or related to an institution of higher education

Translation: No more T-shirts, phone cards, and Frisbees for filling out credit card application on college campuses

A written statement in the following form: ‘Minimum Payment Warning: Making only the minimum payment will increase the amount of interest you pay and the time it takes to repay your balance.’, or such similar statement as is established by the Board pursuant to consumer testing


Translation: Card issuers must tell you how much and how long they are going to milk you for if you only pay the minimum.

This is something that the consumers could figure out on their own with a debt payoff calculator. Hopefully, seeing the numbers will encourage a speedy repayment.



IN GENERAL- In the case of any credit card account under an open end consumer credit plan under which an over-the-limit fee may be imposed by the creditor for any extension of credit in excess of the amount of credit authorized to be extended under such account, no such fee shall be charged, unless the consumer has expressly elected to permit the creditor, with respect to such account, to complete transactions involving the extension of credit under such account in excess of the amount of credit authorized

Translation: Card issuers can’t allow you to charge over your limit, then smack you with a fee for going over. However, you can opt in for over-the-limit “convenience” service. In that case, you can (and should) be charged.

Limit on Fees Related to Method of Payment- With respect to a credit card account under an open end consumer credit plan, the creditor may not impose a separate fee to allow the obligor to repay an extension of credit or finance charge, whether such repayment is made by mail, electronic transfer, telephone authorization, or other means, unless such payment involves an expedited service by a service representative of the creditor.

Translation: Issuers can’t charge you an arm and a leg because you want to pay your bill by phone or over the Internet.

These fees were always ridiculous to me so I’m glad it is not illegal. One of my creditors wanted to charge me $13 to pay by phone. I would refuse and insist on making the payment over the Internet at which time the phone charge was waived.

Retroactive Increase and Universal Default Prohibited- Chapter 4 of the Truth in Lending Act (15 U.S.C. 1666 et seq.) is amended-

Definitions:

Universal Default “in a nutshell” says that if you are more than 30 days late on any payment to anyone, the interest rate on your credit card could increase.

Scenario: Jane has 3 credit cards. Due to unforeseen circumstances she gets behind on her payments for CREDIT CARD A. Because of this, CREDIT CARD B & C add insult to injury by raising her interest rate from 15% to 25%. Never mind the fact she was never late on a payment on CARDS B & C. That is universal default…and it is now illegal.

Retroactive Rate Increase is when credit card companies increase interest rates on purchases made in the past consequently affecting your outstanding balance. Sound unfair? The Obama administration thought so, and it is now prohibited.

An increase due solely to the fact that a minimum payment by the obligor has not been received by the creditor within 60 days after the due date for such payment, provided that the creditor shall

(A) include, together with the notice of such increase required under section 127(i), a clear and conspicuous written statement of the reason for the increase and that the increase will terminate not later than 6 months after the date on which it is imposed, if the creditor receives the required minimum payments on time from the obligor during that period; and

(B) terminate such increase not later than 6 months after the date on which it is imposed, if the creditor receives the required minimum payments on time during that period.

Translation: If you are 60 days late of paying your bill, creditors are allowed to raise your interest rate. However, the rate must return to what it was previously after 6 months of consecutive on-time payments.

Better Translation: Pay your bill on time!


Note: This portion is implemented in “phase 3” and does not go into effect until July 2010.

IN GENERAL- Upon receipt of a payment from a cardholder, the card issuer shall apply amounts in excess of the minimum payment amount first to the card balance bearing the highest rate of interest, and then to each successive balance bearing the next highest rate of interest, until the payment is exhausted.

Translation: Credit card companies will be required to apply excess payments to the highest interest balance first, as consumers expect them to do.

Due Dates for Credit Card Accounts-

IN GENERAL- The payment due date for a credit card account under an open end consumer credit plan shall be the same day each month.

WEEKEND OR HOLIDAY DUE DATES- If the payment due date for a credit card account under an open end consumer credit plan is a day on which the creditor does not receive or accept payments by mail (including weekends and holidays), the creditor may not treat a payment received on the next business day as late for any purpose.’.

Translation: The billing date must remain the same each month, if that date happens to fall on a weekend or holiday, then the bill will be due on the next business day without penalty.

There is more to the 2009 CARD ACT, if you like, read the entire text of H.R. 627: Credit Card Accountability Responsibility and Disclosure Act of 2009 or you can read the CARD Reform fact sheet (shorter version with key points). So what does this mean to you? Only time will tell. These laws were put in place to protect consumers but there may be side-effects. Credit cards may become harder to obtain and awards may be scaled back.

What about you?

Has the new CARD Act changed the way you use credit cards? Has it impacted you in some way? What part of the CARD Act stands out to you?

I’d love to hear from you in the comments

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