New Credit CARD Act Takes Effect Today

The new Credit Card Accountability, Responsibility and Disclosure Act (CARD) goes into effect today and is meant to end many of the abusive practices that credit card companies have been using for years to gouge their customers. According to the law, nasty tricks like hiking interest rates on existing balances and exorbitant penalty rates will be a thing of the past.

Too late.

Unfortunately, the credit card companies have known for some time that this was coming and acted accordingly: they hurriedly raised people’s interest rates when they were late making payments, jacking up rates to over 30% in some cases (which borders on usury), and adding millions in fees to consumer accounts before the law went into effect today. So, while this law will hopefully curtail this shady activity going forward – and even that is not a certainty – the damage has, for the most part, already been done.

Many cardholders have seen their initial interest rates, which were well below 10% in many cases, balloon to 25-30% for being late with one or two payments. Even people who had never missed a payment before were suddenly seeing their rates skyrocket, and with no warning. I’m all for showing restraint and responsibility in personal spending and credit use, but where do you draw the line? How are a couple of missed or late payments worth a 300% increase in your interest rate? When does it end? Well, hopefully today. Only time will tell.


(Disclosure: We are credit card users. We have had the rate on several of our cards increased. Yes, it hurts.)

Here is a summary of the new rules provided by http://banking.senate.gov:


What the Credit Card Act Means for Consumers

On February 22, sweeping new rules to protect American consumers from abusive credit card practices will go into effect.  Required by Senator Chris Dodd’s Credit Card Accountability, Responsibility, and Disclosure Act, these new regulations will put an end to the deceptive and unfair practices that have driven many families into debt and establish clear new rules of the road to give consumers the information they need to make educated decisions when it comes to their credit cards.
What American consumers can expect under the Credit CARD Act:


UNFAIR INTEREST RATE HIKES PREVENTED

·         Interest rate hikes on existing balances will be prohibited unless the cardholder is more than 60 days late in making a payment.
·         Universal default, the practice of raising interest rates on customers if they are late paying an unrelated bill such as a car loan or a utility bill, will be prohibited for existing balances.
·         Teaser rates will be required to last for at least 6 months, and credit card companies will be prohibited from increasing rates in the first year after a credit card account is opened.


CLEAR RULES OF THE ROAD


·         Billing statements will clearly display payment due dates and late payment penalties, and credit card agreements must be posted on the company’s websites.
·         Monthly statements will also warn cardholders about how long it will take them to pay off their balances if they only make the minimum payments.
·         Credit card companies will be required to notify cardholders 45 days before changing terms of their accounts, giving cardholders time to shop around for a better deal and opt-out of the changes, and allowing cardholders to close their accounts and pay off the balance under their current terms. Cardholders will generally have at least five years to pay off the balance.


FAIR PAYMENT PRACTICES

·         Statements must be mailed out 21 days prior to the bill’s due date.
·         Credit card companies will no longer be able to set early morning or other arbitrary deadlines for payments.
·         Any payments in excess of the minimum payment must be applied to the customer’s credit card balance with the highest interest rate, rather than applying payments to customer’s balance with the lowest interest rate as many companies currently do to rake in greater profits.


LIMITED FEES

·         Card companies will generally be prohibited from charging fees to pay bills by mail, telephone, or electronic transfer.
·         Penalty fees will be reasonable and proportional to the omission or violation.
·         Customers will be able to choose whether or not they want over-the-limit fees on their account.  Those who do not opt for these fees will have transactions rejected if they exceed their credit limit.


NEW PROTECTION FOR YOUNG ADULTS

·         For applicants under 21, credit card companies will be required to obtain an application that contains the signature of a parent or guardian or information showing that the applicant has the financial resources to repay the debt.
·         Card companies will be prohibited from offering free gifts in exchange for credit card applications on college campuses, cracking down on misleading marketing tactics.
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  1. Pingback: New Credit CARD Act Takes Effect Today | Wallingford Wired Leading just to Me

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