MoreBangForMyBuck

The New Credit Card Rules and You

How the CARD Act of 2009 Can Help

At the root of today's economic troubles is debt, and this tends to be true for individuals just as much as society at large. People's mortgage problems and foreclosures tend to get most of the focus in the media. However, credit cards were used by many during the boom to take their lifestyles to the next level. Even if you have debt from more prudent uses, recent stories of credit card issuers spiking interest rates up above 30%, or raising rates based on payment issues with a completely separate debt, may have you concerned. Many credit card companies have been raising rates even without any delinquency or other problems with the card holder.

To end some of these worrying practices, in 2009 President Obama signed the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009. While it certainly received less attention than the recent Health Care battles, it may have an even more drastic effect on you and your family's future, especially if you already have large credit card balances.

The CARD Act includes many protections for credit card holders. These protections are most powerful, however, for debts accumulated in the past. They can potentially be a great aid to you, but only when combined with responsibility going forward.  

The CARD Act includes many protections for credit card holders. These protections are most powerful, however, for debts accumulated in the past. They can potentially be a great aid to you, but only when combined with responsibility going forward. For instance, credit card issuers are now restricted from retroactive rate increases. This means that, barring a delinquency or other exception, they are not allowed to raise interest rates on existing balances, only on balances generated in the future. In addition, they must give a forty-five day notice if they plan to raise rates. It also ends double-cycle billing, wherein a company took both the current and previous billing cycles into account for determining finance charges. Under double-cycle billing, even if you paid off your balance in full after charging to your account, the company could still assess a finance charge to your account based on the previous month.

One thing implied by the above statement is that a person can have several balances at different interest rates on the same card, and indeed, that has been the case for some time. Frequently, in the past, credit card contracts have stated that the issuer would apply any payment in excess of the minimum to the lowest interest rate first, maximizing their profit and your pain. The new law ends this practice, and requires that payments in excess of the minimum be applied to the highest interest-rate balances first.

Of course, it is not just interest rates that can turn credit cards into a terrible burden. Fees, sometimes hidden, can also quickly turn what would otherwise be a manageable credit card balance into a debt nightmare. Over-limit fees are one way that people are frequently caught. Due to the CARD Act, however, you can now opt to have a credit card company reject any transaction which would push your balance over the limit. This may result in a slightly greater frequency of card rejections, but for many the financial reassurance will more than make up for these minor embarrassments.

The other fee that often strikes credit card users is the late payment fee, and in the past some unscrupulous credit card issuers have scheduled payments in such a way as to maximize the chances your payment will arrive late. Some companies even went so far as to set the times on due dates in the early morning, so that a check that came in in the afternoon of the due date would be late. Now, the time of day a payment is due on the due date must be 5 P.M. or later. Payments made at bank branches must be posted to the account on the same day, and the next due date cannot be scheduled sooner than 21 days after the last payment. In accordance with this, credit card companies must issue billing statements 21 days before the due date, up from 14 under previous law.

The new law also provides for an opt-out should the card issuer ever give notice that card terms are about to change. Card holders must now be given the option, upon any policy change, to close the account and pay off any remaining balance according to the original policy.

Finally, if you have any children in college and are worried that they may come home with a crushing credit card debt, it may ease your mind to know that changes have been made in this area as well. Credit card companies are prohibited by the CARD Act from issuing credit cards to those 21 and under unless one of the following conditions are met:

1. The applicant can prove an independent source of income.
2. A co-signer aged 21 or over is also on the application.

While these requirements certainly don't end the risk of your college-aged children showing up on your doorstep with a giant bill in hand, they should at least help.

Credit card companies can be scary and frustrating to deal with. Sometimes the unilateral nature of contract changes included in every credit card agreement can make the holder feel helpless and abused. Fortunately, the policies in the CARD Act do grant some protection to consumers. Some of these protections can even be a help when your troubles come in part from past recklessness. However, with credit card companies hunting more aggressively for every last drop of revenue they can find, it is important to note again that, while the CARD Act can help, it is far more effective with good practices going into the future. You still need to live within your means and pay your bills on time. Failure to do so opens the door for most of the harsh policies credit card issuers used to be allowed. Thus, while it may do some good for the employed who are prudent with their spending, for the unemployed and others who have been reduced to living off their credit cards, this bill does little to help. Still, everyone with a credit card should be aware of what this law means to them and what they can now expect from their creditors because of it.