What are the Newest Credit Card Rules?
Find out how the newest credit card reform can help your finances.
Laura Adams, MBA
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What are the Newest Credit Card Rules?
In this post I’ll tell you five ways the new credit card rules can help protect your finances.
What is the CARD Act?
You may remember that a new regulation called the CARD Act became law back in May of 2009. The name is an abbreviation for the Credit Card Accountability, Responsibility, and Disclosure Act. The rules for the legislation didn’t go into effect right away, but instead were scheduled to roll out in three separate phases. The first phase was in August of 2009, the second phase goes into effect this week—on February 22nd, and the final phase will be in August of 2010.
New Credit Card Rules from August 2009
I covered the first round of rules in a previous post, but here’s a quick recap of the three most important points that became law last year. Those credit card rules require creditors to:
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Give you written notice 45 days in advance of making any substantial changes to the terms of your account, such as hiking your interest rate or increasing your fees.
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Inform you in writing that if you don’t accept their new terms, such as additional fees, you can close your account and pay it off under the old terms.
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Deliver your account statements electronically or by mail at least 21 days before your payment is due.
New Credit Card Rules that Start February 2010
The second round of credit card reform, that goes into effect this week, is the most extensive. The regulations deal with many of the issues that are most important to consumers, like unexpected interest rate increases and fees. So, if you’re ready, here are five ways the new rules can help protect you:
1. Interest rate increases can’t happen easily. For fixed-rate cards, your interest rate can’t be hiked on an existing account balance unless you’re at least 60 days late making a payment. For new accounts, the rate can’t be increased at all during the first year, if you’re paying on-time. But for variable-rate cards, the interest rate can always increase or decrease based on the index it’s linked to, such as the prime rate. However, when a creditor offers a promotional interest rate for any type of card, they have to honor it for at least six months.
2. Over-limit fees are limited and must be permitted. You’ll have to give your consent for a creditor to charge an over-limit fee on your account—that’s a penalty for accruing a balance that exceeds your credit limit. You may be thinking why would I ever give permission to be charged a credit card fee? Well, I don’t recommend it, but if you do agree to over-limit fees you’ll never have to worry about having a charge denied due to insufficient credit. The good news is that you can only be charged one over-limit fee per billing cycle. Also you can’t be charged an over-limit fee if the reason you go over your limit is due solely to interest charges or fees, and not due to your spending.
3. Late fees and payment fees are restricted. You can’t be charged a late fee if your payment is received by 5:00 pm on the due date, but doesn’t get posted to your account. Nor can you be charged a late fee when your payment arrives on the business day that follows a due date that happens to be a weekend or holiday. Now you can make a payment any way you like—by mail, phone, electronic transfer, or online—and creditors can’t penalize you for it (however, they can charge you a service fee to expedite a payment).
4. More account information will be at your fingertips. Creditors now have to make your account terms and agreements available online. They’ve also got to beef up your monthly account statement with disclosures. They have to tell you how long it would take to pay off your balance if you only made the minimum payment each month. The statement also has to show the payment and interest that you’d need to pay in order to eliminate your full account balance within three years.
5. The highest interest portion of your debt gets credited first. When you make a payment that exceeds the minimum monthly amount due, it’s allocated to your highest interest balance first. For instance, if you made a higher-interest transaction, such as a cash advance, that balance would be paid down before any balance you have for regular purchases.
As great as the credit card reform is for consumers, there are still credit traps to be aware of.
Be Aware of Credit Traps
Ok, back to credit traps that the CARD Act doesn’t address. The new regulations don’t put any restrictions on:
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how high credit card interest rates can go
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how much newly-invented credit card fees can be
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how much your credit limit can be reduced
The new regulations also don’t apply to business credit card accounts (the regulations only apply to consumer cards). So be sure to read each month’s credit card statement very carefully and watch out for increases in rates and fees and decreases in your credit limit. Also be on the lookout for brand new fees that card issuers may try to slip in to increase their revenue, such as “processing” fees or “inactivity” fees.
Quick and Dirty Credit Card Tips
You know that in order to use credit cards wisely, you should never charge more than you can pay off in full each month. But if you have to carry a balance for a special purchase or because you get stuck in an emergency situation, always use a card with the lowest interest rate and fees that you can find. Compare current offers at sites like creditcards.com, cardratings.com, and creditcardguide.com. Keeping your credit score as high as possible will make you eligible for the lowest interest rates out there.
Click here for updates about more regulations from the CARD Act.
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More Resources:
CARD Act Legislationopens PDF file
White House Fact Sheet on CARD Act
Guide to the CARD Act
Money Girl Episode 135: How to Raise Your Credit Score
Money Girl Episode 147: Does Canceling a Credit Card Hurt Your Credit?
Credit Cards image courtesy of Shutterstock
About the Author
Laura Adams received an MBA from the University of Florida. She’s an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura’s previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.