The February 2010 changes to the way credit card companies can do business may have you puzzling over your plastic. The provisions of the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 are almost as complex as the average statement. Here's a breakdown of those recent rule changes and the ways they affect millions of credit cardholders.
Rule Change #1: Other Unpaid Bills Can't Close Your Cards
This was a huge victory for consumer advocates. Card issuers had long been allowed to cancel cardholder accounts based upon unrelated late payments to utility companies, mortgage lenders and the like. Your accounts can now only be closed based upon your payment history to that specific card issuer.
Rule Change #2: Automatic Rate Reviews
Rather than ignoring your excellent payment record, credit card companies must now review your account at least every six months to determine if you qualify for a lower interest rate.
Rule Change #3: No Over-Limit Fees without Your Permission
In the past, card companies allowed certain cardholders to charge in excess of their credit limits, but then smacked them with big over-limit fees. According to the CARD Act, those companies can no longer charge such fees without the cardholder's permission. The downside for consumers who regularly overcharge is that the card issuer is now more likely to decline your excess charges.
Rule Change #4: Decipherable Credit Card Statements
Previously, you may have found it difficult to understand page after page of financial data sent each month by your credit card company. Every statement must now contain one important new feature-a box that contains the total fees and interest paid, as well as your estimated monthly payment if you wanted to pay off the balance in thirty-six months.
Rule Change #5: New Account Interest Rates Frozen for One Year (Most of the Time)
If you apply for a new card, the issuer cannot raise the interest rate for one year after date of issue. Should they decide to raise your rate at that point, they can only apply it to new purchases. Before you start celebrating, however, you should be aware of several loopholes in this provision. The card issuer can raise your rate if you are more than sixty days late making a payment, and variable interest credit cards are immune to this rule. If you received an update recently from your credit card company, it may have been advising you your card was being switched to a variable rate. This ploy was used frequently by credit card companies in the months prior to February 2010. One more downside: rates on existing cards can be raised with 45 days notice to the cardholder.
Rule Change #6: No More "Kiddie Credit Cards"
One appalling practice by the credit industry that's been laid to rest with the CARD Act is the issuing of credit cards by the millions to very young people with little income. Young people under the age of 21 can now not be issued a credit card without an adult cosigner who will take responsibility if the cardholder defaults, or proof of enough income to make the required payments.
Rule Change #7: Payments Applied to Highest Interest Balance First
An ingenious way credit card companies raked in armloads of interest in the past was by applying your payments first to low-interest balance transfers, and anything left over to higher-interest new purchases. The new law ends that practice by requiring payments to first be applied to high interest balances.
A Future of Responsible Credit?
This laundry list of changes the CARD Act makes to the practices of credit card companies isn't exhaustive, but does it highlight the provisions most likely to bring you relief. Responsible credit use is, of course, the duty of the person holding the cards, but with the help of the CARD Act of 2009, at least you're not playing against a stacked deck.
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