Until recently, credit card issuers' practices have helped trap millions of consumers into a life of constant worry over mounting debt. These are hopefully soon to be a thing of the past.
The Credit Card Accountability Responsibility and Disclosure Act establishes 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.
Then again, credit card rules are hardly ever simple — and the CARD Act is no exception. Here are key changes that the new law mandates, along with some notable exceptions that could still result in consumers getting into trouble with their credit cards.
Finance charges, rate hikes and notifications
• No rate increases for the first 12 months after opening an account, unless this was part of a teaser rate.
• Rate increases can be applied only to new charges.
• Annual and application fees cannot exceed 25 percent of the 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 making a payment on the due date.
• Must give 45-day notice of pending rate or fee hikes or any other significant changes to credit-card terms.
Exceptions, caveats, loopholes:
• Rate hikes are allowed if the account holder is more than 60 days late with a payment.
• Some firms have already found a way around the rate hike issue by increasing card users' regular interest rates to as high as 29.9 percent 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, because the interest period can span more than one billing cycle.
• Issuers have been calling consumers asking them to opt in for over-limit fees in exchange for lowering that fee. 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.
Billing statements, payments, disclosures
• Billing statements must be sent 21 days before the due date.
• The account 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 to pay off the balance if making minimum payments only and the total that will be paid, including interest and principal, and how much is needed to pay each month in order to pay off the balance in 36 months and the total interest and principal that will be paid.
• Statements must also include a warning that by making only minimum payments, more interest will be paid and it will take longer to pay off the debt, as well as a toll-free number to call to be referred to a credit-counseling service.
There are exceptions, caveats, and loopholes
If a purchase is made under a "deferred interest" plan (such as "No interest for six months" ), the company may allow the account holder to apply extra amounts to the deferred-interest balance. Otherwise, for two billing cycles before the end of the promotional period, the entire payment must be applied to that balance.
Carrying a deferred-interest balance is a risky proposition altogether: Unless the balance is paid in full over the specified period, the company will charge all interest retroactively once the promotional rate expires.
College students and young adults
• No credit cards for college students unless co-signed by a parent or the student can demonstrate "ability to pay."
• For individuals under the age of 21 who have a co-signer, no credit-limit increases without the 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.
• 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.
Scott Taylor is the family and consumer sciences agent for the Hernando County Cooperative Extension Service. He can be reached at (352) 754-4433 or firstname.lastname@example.org.