What You Need to Know About the Credit CARD Act
While some parts of the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (aka the Credit CARD Act) have already been implemented, the vast majority of the new credit card laws are due to go into effect on February 22, 2010.
The credit card law imposes stricter regulations on the credit card industry, but you'll also be affected by the new Credit CARD law. Two mandates have already gone into effect: Quicker delivery of account statements (21 days before the payment deadline rather than 14) and longer advance notice of increases to your interest rates and fees (45 days in advance rather than 15 days). These provisions are designed to better help you pay your bill on time and to give you more time to adjust to increased costs, respectively.
Here's a look at the regulations that go into effect on February 22, 2010:
Restrictions on interest-rate hikes
- Credit card companies can no longer raise the interest rate on your existing balance unless your payment is more than 60 days late or unless your teaser rate (i.e., an introductory or promotional rate offer) expires.
- If you opened a credit card account with a teaser rate, that rate can't be raised for at least six months.
- Unless your teaser rate expires, a credit card issuer can't raise your interest rate on new purchases in the first year of your account.
- "Universal default" clauses, which allowed credit card companies to increase your interest rate if you were late making payments on other, unrelated accounts, are now banned.
A mandate to pay down the highest-interest balance first
- If you're charged multiple interest rates on your account balance, any payment you make above the required minimum must be applied to the portion of your balance with the highest interest rate. Once the highest-interest balance has been paid off, any payments you make above the required minimum will then be applied to that part of your balance carrying the next-highest interest rate, and so on.
An "opt-in" requirement for overdraft protection
- Unless you take action to receive overdraft protection, you can't be charged over-the-limit fees. (Remember, though: If you don't carry overdraft protection, any purchase that would take your balance above your credit limit will, in all likelihood, be rejected by the merchant on the spot.)
Restrictions on marketing to college-aged consumers
- Credit card issuers can no longer use gifts to induce students to apply for a credit card on or near college campuses. Also, if you're under the age of 21, you'll have to prove that you're financially able to pay your credit card bills; if you can't show such proof, you'll need an adult to co-sign your application.
Easy-to-find information on long-term minimum-payment costs
- Under the Credit CARD Act, your account statements must prominently display information about how long it'll take you to pay off your existing balance — including any interest payments on that balance — if you only make the minimum required payment each month.
New finance-charge calculations
- Credit card issuers can no longer use your average daily balance from the previous billing cycle to determine your finance charge for the current billing cycle.
There's one final consumer credit card law that takes effect in August 2010: If your interest rate has been raised due to a late payment, you can go back to the lower rate if you make your payments on time for six straight months.
Credit card companies are in business to make money, of course, so even with these new credit card laws, they'll continue to look for new ways to make money and/or to cut their own costs.
Clearly, it's more vital than ever that you keep an eye on your credit behavior. That's why FreeScore offers you unlimited access to your credit reports and scores at all three credit reporting agencies — TransUnion, Equifax, and Experian — as well as a service that continuously monitors your credit information at those three credit bureaus.
The more you know about your credit history and how the Credit CARD Act can affect your access to future credit, the better prepared you'll be to make both short- and long-term financial decisions that are truly in your best interests.