- Big Changes Coming for the Credit Card Industry
The credit card industry is beginning some major shifts in response to requirements put forth in the Credit Card Accountability, Responsibility and Disclosure (CARD) Act signed into law on May 22, 2009. The law was enacted to help American consumers who were battling years of unfair rate hikes and hidden industry practices. Three primary areas of change are scheduled to roll out in three phases over the next 12 months and include notification, terms and gift cards.
Below are some highlights of the bill and their effective dates.
August 20, 2009 – Notification
Credit card companies will now need to provide customers with monthly bills 21 days prior to the due date. Previously the credit card company was only required to bill customers 14 days prior to the due date. The act also ends late fee traps such as weekend deadlines, due dates that change each month and deadlines that fall in the middle of a day. Additionally, credit card companies must also provide written notification 45 days before making any rate changes.
Feb 22, 2010 – Terms, Rates, & Fees
Contract terms must be clearly spelled out and locked in for a period of six-months from the date of card issuance. Credit card companies may continue to offer promotional rates and reduced fees in order to solicit new customers, but the advertised rate must remain consistent for the first six months.
If the credit card company increases the rate on your card, the increase will only apply to new charges and not on the existing balance. Fair interest calculations will require credit card companies to apply any excess payments to the highest interest balances first and will eliminate ‘double-cycle’ billing where issuers are charging interest on previous month’s balances rather than the current month. Over the limit fees will also be impacted because credit card companies will now be required to notify a card holder and obtain their permission if a purchase exceeds their credit limit. To curb underage credit debt and the financial crisis happening among late teen and college age students, credit card companies will no longer be able to market credit cards to anyone under the age of 21 unless a parent, guardian or spouse is willing to co-sign or unless the young adult has proof of sufficient income to cover the credit obligations.
August 22, 2010 – Gift Card regulation
New and improved disclosures will be required on gift cards and store value cards. The law also restricts inactivity fees unless the card has been inactive for at least 12 months.
Plain language for consumers will also be required on all disclosure documentation prior to opening an account and in any notification materials thereafter. This will enable customers to avoid unnecessary costs and better manage their finances. Credit card companies will need to display in clear and periodic statements the length of time it will take for a consumer to pay off an existing balance including the total interest costs when the minimum payment is made.
Opt out of rate increases
If you are notified of a rate increase, you have 45 days to negotiate, shop around for a new rate, or notify the credit card company that you will pay off the balance at the current interest rate and then close the account. This may impact your credit rating, but it may still be better than paying a substantially higher interest rate on the credit card balance.
Last Minute Hikes and Changes
Fixed rate credit cards are all but gone and fees have risen on cash advances and balance transfers. Credit card companies are quickly replacing cards that have a fixed rate by variable rate cards in order to beat the Act’s effective date. If you are paying the minimum monthly credit card payment, your monthly bill has now increased from 2% to 4-5% of the balance.
While the bill has the consumer’s best interests at heart, the credit card industry is scrambling in the last hours of the old law to get as much money as they can through other channels. The best advice we can give is to read your monthly statements, know your balances, make payments on or before due dates, and shop around for better terms whenever possible.
Are you having difficulty with your credit card company? Finding erratic billing cycles and changing interest rates challenging? What’s been your experience?