What Do New Fed Credit Card Regulations

Mean To Consumers?

WALLINGFORD — New legislation went into effect on Monday, February 22, that will drastically restrict some of the credit card industry’s most unpopular practices. Phase II of the Credit Card Accountability, Responsibility and Disclosure Act (CARD) is aimed at protecting 181 million cardholders from “any time any reason” punitive rate increases on existing balances and changing the formula for calculating monthly interest payments, to the advantage of consumers.

These and a variety of other restrictions on card issuers will radically alter the relationship between credit card companies and cardholders, who, for decades, have been subject to short notice for changes to terms, conditions and interest rate increases, related fees, and so-called “fee traps,” such as when the monthly payment due date falls on a weekend.

According to a survey carried out by Creditcards.com, three out of four cardholders do not read the fine print of terms and conditions. Although the CARD legislation provides more protection for consumers, cardholders nonetheless must familiarize themselves with fine print, watch for changes to their accounts, and respond quickly if they are not satisfied.

Connecticut Better Business Bureau President Paulette Scarpetti said cardholders also should familiarize themselves with the legislation’s provisions.

“Better Business Bureau views the legislation as a positive change for the marketplace,” she said. “The CARD Act puts into place new protections for consumers and forces card issuers to be transparent about fees, penalties, and interest rate increases, while requiring them to provide information in clear, easy-to-understand wording.”

Here are a few of CARD’s new regulations and how they protect consumers:

More Notice for New Interest Rate Changes: Card issuers must give cardholders 45 days advance notice in the event of an interest rate increase. Additionally, promotional rates must apply for at least six months and, unless disclosed up front, cardholders cannot have their rate increased in the first year.

Cardholder Opt-Out: If there are significant changes made to the terms of the account, cardholders can choose to reject those changes and will have five years to pay off the balance under the original terms.

Older Age Restrictions Added: Card issuers are no longer allowed to issue a credit card to anyone under 21 unless they can prove they have the means to repay debt or if an adult over 21 co-signs on the account. Credit card companies also face new restrictions on how they can promote cards to college students and can no longer offer free gifts as enticements on campuses.

New Rules For Monthly Statements: In response to complaints that bill due dates were being moved up — and leading to increased late fees — monthly statements must now be mailed or delivered 21 days prior to the due date. Additionally, card issuers can no longer set a payment deadline before 5 pm and cannot charge cardholders if they pay online, over the phone, or by mail — unless the payment is made over the phone either on the due date or the previous day.

Overpayments Go Toward Highest Interest Balances: If the cardholder has varied interest rates for different services or accounts, any overpayments must be applied to the account that is incurring the highest interest rate.

Over the Limit Opt-In: Cardholders must opt-in to be able to exceed their credit limit — and subsequently be charged an over-limit fee by the issuer. If a cardholder chooses not to opt-in, then he or she will not be able to exceed the credit limit and incur any resultant fees.

Increased Disclosure on Minimum Payments: Card issuers must disclose how long it will take the cardholder to pay off their bill if they only pay the minimum monthly payment, as well as how much the cardholder would need to pay monthly to pay off the balance in 36 months.

Prohibition of “Double-Billing” Cycles: When calculating finance charges, card issuers can no longer employ two-cycle or double billing — a method that causes cardholders to pay interest on previously paid balances.

To learn more about the new consumer protections, visit Creditcards.com for a comprehensive breakdown of the Credit CARD Act of 2009. More information on wise management of finances can be found at bbb.org.