Credit Reform - What Does it Mean for You?

The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 went into effect on February 22, 2010. The new law means significant changes to fees, interest rates and restrictions. Here’s an overview of the new law and what it means for you as a consumer and credit card holder.

Fees
The new regulations limit fees such as those charged when consumers exceed their credit limits or pay bills online or by phone. Credit issuers will no longer be able to charge over-limit fees unless cardholders are notified that the purchase will put them over their limit and they authorize it regardless. And they can no longer engage in double-cycle billing, where interest charges are spread over two billing cycles rather than one. The new laws also limit upfront fees for subprime credit cards issued to people with less-than-great credit. Rules for billing statements have changed too; now they must be mailed at least 21 days before account due dates.

Interest Rates
New interest rate regulations are aimed to help consumers avoid paying hefty interest charges. Credit card issuers face new requirements for how account payments are applied, including one that prohibits them from organizing monthly payments to maximize interest charges to consumers. If a card has more than one interest rate on balances, payments must be applied to the highest interest rate first. Issuers are also prohibited from making arbitrary interest rate increases and setting misleading terms. Consumers now have the right to opt out of certain term changes.

Interest rates can’t be raised during the first year of an account (with a few exceptions, including teaser rates). Customers must be over 60 days late on payments before their interest rate can be raised on balances. If the rate is raised, it will go back to the lower rate if customers make the minimum payment on time for six months in a row.

Restrictions
One of the most significant restrictions in the new legislation concerns credit cards for young adults. From now on, anyone under 21 must have an adult co-sign if they want to open their own credit card accounts or prove that they can repay the card debt themselves. The new law is designed to help prevent college-age young adults from getting in over their heads.

Other restrictions include a ban on shifting due dates so that payments will be due on the same day every month. Gift cards are required to extend for five years, and issuers can’t charge dormancy fees for unused amounts left on cards.

Disclosures on Account Changes
Finally, the law aims to get credit issuers to be more transparent in disclosures about account policies. From now on, creditors must post their written credit card agreements online, and give 30-day advance notice before closing accounts. They are also required to give cardholders at least 45 days notice of any change in terms.

With all these reforms in effect, you may be wondering what hasn’t changed. The new law doesn’t completely eliminate an issuer’s ability to charge new fees or raise rates. And it doesn’t limit payday lenders, who offer short-term loans at very high interest rates.