Monday, March 18

What Will New Credit Card Regulations Mean for You?


In late August 2009 and February 2010 the new credit card rules designed to protect consumers took effect. They are part of the Credit Card Accountability, Responsibility and Disclosure Act of 2009, often called the Credit Card Act 2009. This legislation  provides new protections for consumers by providing for better disclosures about credit card terms and curbing some of the worst practices of the credit card industry. What do the new regulations and card issuers’ actions mean for you and your use of credit and credit cards? This report gives you an overview.

Adequate notice to consumers

These regulations primarily try to ensure that consumers receive adequate notice of changes in account terms and have adequate time to pay accounts on time. Following are the main items:

Issuers must notify customers 45 days in advance (up from 15 days) of any "significant" changes to the terms. Such “significant changes” include these:

  • Increases in the Annual Percentage Rate (APR) on fixed-rate cards. No notice is required for increases 1) for variable APR cards if the change results from the index changing or 2) for the end of a promotional rate period. For beneficial changes, such as lowering an APR, no notice is required.
  • Changing the interest rate terms from a fixed rate to a variable rate, or from a variable to a fixed rate. (If you have had a fixed-rate card or think you have and typically play little attention to card notices, it’s smart to recheck your card terms; many issuers changed fixed rate cards to variable rates in anticipation of this change.)
  • Increases to any fees.
  • Changes to the minimum payment requirements.
  • Changes to the method for computing the balance.
  • A reduction or elimination of any grace period.

Billing statements must be mailed or delivered electronically at least 21 days before the due date. The goal is to provide consumers adequate time to make payments on time and avoid late fees. The previous term of 14 days allowed was so short that many customer got caught by “gotcha” late fees.

A grace period must be at least a 21 day period extending from when the statement is mailed. Not all cards have grace periods. A grace period is the time after a purchase during which no interest is charged. The advantage of a grace period is typically that you pay no interest on purchases if you pay off your balance in full at each statement.

Better protections

These regulations place a wider range of restrictions on card issuers with the goal of better protecting card users from deceptive or unfair credit industry practices.

Restricts retroactive rate increases on existing balances. Raising the interest rate on existing balances for “any time/any reason” or because you may have been late on another credit account (the practice of universal default) is prohibited. Interest rates can be raised if you have made a payment late by 60 days or more after the due date, but the issuer must give you forty-five days notice and the option to cancel. After any interest increase, the issuer must periodically review your account with an eye to reducing the rate if you qualify. If the increase was caused by your late payment, then after you have paid on time for six months, under the new law, your interest rate should be reduced to its original, lower rate.

On new accounts, prohibits increases in interest rates and fees during the first year after a credit card account is opened. If the new account has a promotional rate, it must last six months and all terms for the account must be clearly disclosed when the account is opened.

If you opt to close an account, the issuer can not require immediate repayment of your balance. The card issuer must define the repayment plan as either of the following:

  • The balance is to be paid over at least five years.
  • The minimum monthly payment that includes a percentage of the balance that is equal to not more than twice the percentage required before the effective date of the increase.

If a charge would put you over your credit limit, you must be informed immediately and asked to “opt in” to the over-the-limit charge. Opting in this case constitutes your okay to over-the-limit fees. This means the card can be refused if a purchase would exceed the limit. Over-the-limit fees can be charged only once per billing cycle if the balance is above the credit limit on the last day of the billing cycle.

No fees are allowed to make a payment online, by telephone, by mail, or any other means. A payment fee is okay for an expedited payment arranged live through a service representative.

Payments on a single account must be allocated first to balances with higher interest rates. Payments that exceed the minimum payment must be applied to the balance with the highest interest rate. The exception is during the last two billing statements before a deferred balance is due. In this case, the excess payment must be applied to the deferred balance.

Payment due dates must be consistent and fair. Issuers must credit all payments received by 5pm on that day. Due dates must be on the same day each month, for example the 4th or the 15th. If the payment due date falls on a weekend, holiday, or other non-business day, the payment can not be considered late if received on the next business day. The date a payment is made at a local branch (if payments are accepted at local branches) will be considered the date the payment is posted.

Billing statements must include repayment disclosures. Statements must include:

  • the period of time and total interest it will take to pay off the card balance if only minimum payments are made,
  • the monthly payment amount required to pay off the card balance in 36 months,
  • toll-free number for credit counseling and debt management services.

Marketing of credit cards to college students is curtailed. To prevent deceptive practices of blanket marketing to college students regardless of their ability to pay, credit cards may not be issued to anyone under age 21 unless there is a co-signer over age 21 or the under-21 applicant provides information indicating s/he can pay the bill.


What the new credit card rules don’t do

Although the new credit card rules provide many much-needed protections for consumers, they don’t mean that credit cards will be easier to get or cheaper. Instead, the opposite is likely.

The new rules also do not prohibit card issuers from lowering credit limits or canceling accounts no matter how responsible the card holder has been or how good their credit if the card company judges that those actions benefit them.

For more information

Consumer Financial Protection Bureau's Know Before You Owe: Credit Cards