For years, millions of Americans have spent many sleepless nights stressing over unexpected increases in interest rates, worrying about the potential of being double billed, and over-limit fees associated with their credit cards.
Finally things are beginning to change as those practices are being banned and put to rest.
On February 22nd, 2010, the CARD Act took effect within the U.S. as new rules regulating credit-card issuers were put in place in order to protect consumers from excessive fees. If you happen to be one of the few people that read through everything that your credit card company sends you, then you are probably more than aware of the changes that have occurred and how they will affect you.
However, if you are like everyone else, then you are going to want to sit back and we’ll explain exactly how your finances are going to change.
First let’s go through a quick rundown of key laws that were put into place with the CARD Act:
– Credit card rates cannot be increased for the first year that an account is open.
– Annual fees cannot be more than 25% of your credit limit agreed upon when you opened the account.
– Double-cycle billing is banned.
– Over-limit fees are illegal unless consumers choose to opt-into the program.
– Rate increases cannot be applied to old charges.
– Credit card issuers cannot charge fees for making payments on the phone or online.
– Issuers have to give 45 days notice for any increases in fees and rates or any changes to the terms of the credit card.
While those changes offer quite a bit of protection for credit card consumers, there are a few loopholes that issuers can still benefit from.
– Some issuers are increasing normal interest rates to close to 30% in order to cover their potential losses, and then offer refunds for customers that pay on time.
– If you are more than 60 days late in making a payment, additional rate hikes can be put into effect.
– While double-cycle billing is essentially not allowed, they can be used with credit cards that exist without any grace periods.
– Companies are calling customers and offering lower rates if they opt to accept over-limit fees.
There are also a number of changes in terms of payments and billing statements, including:
– Customers must be mailed their statements at least three weeks before the monthly payments are due.
– Due dates must remain on the same day each and every month.
– Payments are on time if they are paid by 5pm on the date the payment is due, or on the next business day after a weekend or holiday.
– If a customer makes a payment over the minimum amount, then it has to go towards the balance with the highest-rate.
– Every month your statement has to divulge additional information such as how long it will take for you to pay off your debt while making minimum payments, and how much interest you will play in total. The statements must also provide a disclaimer discussing how you will pay far more interest if you pay only the required minimum amount.
One of the main exceptions to the rule comes in the form of deferred interest plans. If you make a purchase under a plan that offers options such as six months without interest, issuers can add extra fees to the total balance. Just keep in mind that having a deferred interest balance is always risky, unless you can pay off the debt in full before the specified period is over. Many feel these types of plans should have been banned, so be careful if thinking about utilizing one.
There are also a few changes brought about by the new credit card regulations that are aimed at protecting younger adults and students, including:
– College students cannot receive credit cards unless their parents co-sign for them or unless they provide proof of income, and that they have the ability to pay them off.
– Credit-limit increases are banned for anyone under the age of 21, without the permission of a co-signer.
– Freebies and credit card marketing are banned altogether from university campuses.
The fairly obvious drawback to these loans is that many issuers will start marketing to the parents of young adults in order to convince them to co-sign. Worse than that is the fact that a co-signer is actually on the hook for all debts for as long as the credit card is being used. On top of that, although marketing is banned from campuses, issuers can still set up shop in places off-campus such as shopping malls, movie theatres, and other areas which students frequent.
There is a vast array of new regulations that will help credit card consumers, and now that you understand how they work you are in a much better position to benefit from them. Just make sure that you also understand the loopholes, and the changes in marketing that are going to occur. As always, continue to read all of the fine print yourself and make you own informed decisions.
If you stay committed to understanding all the changes that are happening around you, you will always be one step ahead of the game.