CARD Act Rules go into Effect Today

Beginning today, consumers are now protected against many tricky credit card practices that once caused confusion for cardholders. The new rules are part of the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009.

Treasury Secretary Tim Geithner said in a statement, "With today's implementation of new rules, we are taking a critical step forward in our effort to protect American families by prohibiting the use of unfair retroactive rate hikes and late fee and over-limit fee traps by credit card companies."

The CARD Act was signed into law in May 2009 as part of President Obama's credit card reform. The first protections of the CARD Act took effect last August when consumers were given the choice to decline significant changes in terms to their credit card agreements, including interest rate changes. Another change is the requirement for issuers to mail credit card statements at least 21 days before the payment due date in order to give consumers more time to send their payment without incurring interest charges.

"The rules taking effect on Monday are the most important step in an ongoing process that will increase protections and make card terms more predictable and manageable for customers," said Kenneth J. Clayton, senior vice president and general counsel for American Bankers Association (ABA) card policy. "Consumers are really placed in the driver’s seat by these new rules."

Highlights of the protections going into effect today:

The new law simplifies billing practices.
If you have balances that have different interest rates (for example, a cash advance balance and a purchases balance) your payment will be applied to the higher interest balance first in order to pay your debt in the fastest and cheapest way possible.

Due dates will be on the same day every month, and will be considered on time if received by 5 p.m. EST regardless of where the card issuer is located. Also, if the due date falls on a weekend or holiday, the due date will be the next business day after the due date. This will help to simplify consumers' credit card payments and help prevent much of the confusion in getting payments to issuers on time.

Double-cycle billing is banned. This tricky practice punishes consumers with interest charges, even if they didn't carry a balance that month - because they had a balance in the previous month. No longer allowed!
The new law protects consumers against interest rate increases.

Consumers can refuse interest rate increases and the balance paid off at the current interest rate - but the card issuer can close the account if the cardholder refuses the change.

Nearly all interest rate increases on outstanding balances will be prohibited (with very limited exceptions). So what this means is that even if you accept an interest rate increase from your card issuer, that increase will normally only apply to new balances and you can continue to pay your previous balance off at the old rate.

Interest rate increases are not allowed in the first year an account is opened, unless the increase is disclosed at the opening of the account. For example, a 6-month introductory rate for opening a new account will still be allowed because the card issuer is telling you in advance about the rate increase.

Cardholder must be notified of an interest rate increase at least 45 days in advance.

The new law protects consumers from excessive fees.
Remember the days when your card was simply declined when you attempted to go over your credit limit? That is how it's going to be done again. In order to be allowed to go over the credit limit (and be charged the applicable over-limit fees), the consumer must "opt in" to the over-limit service.

Card issuers will not be allowed to charge additional fees for the manner in which consumers pay their bill (for example, by phone).

Upfront subprime card fees are dramatically limited.

The new law helps to protect young people regarding credit.
Credit card applicants under the age of 21 will be required to provide proof that they can pay their debt, either through income documentation or with a co-signer. Also, the marketing of credit cards on college campuses will be restricted.

"What we’re seeing with these new rules is the elimination of many practices that frustrated credit card customers and the start of a new era where customers will have greater choice, control and predictability in managing their credit card accounts," said Clayton. "The bottom line is this: the credit card industry is changing and these new rules will help empower consumers to take control of their personal finances."

While these provisions do represent the bulk of the reforms under the CARD Act, rules to improve customer disclosures take effect this July, followed by further new protections taking effect this August.



Sources:
U.S. Department of the Treasury
American Bankers Association