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New Regulations for Credit Cards - The Credit Card Act

Federal regulators have signed into legislation new regulations for credit card companies. Some took effect August 20 of 2009 while others went into effect February 22,  2010. The main points of the credit card act:

  • Statements must be delivered or mailed 21 days before the due date. If the account has a grace period, finance charges cannot be accessed unless you received the statement 21 days before the finance charges are to start. In the past, consumers often end up with late payments because of the short amount of time between receiving their bill and the payment due date.


  • Card issuers must give 45 days notice before raising your interest rate or any significant changes in the terms.  It used to be 15 days.


  • Interest rates cannot be increased during the first year of a new account unless an introductory or teaser rate ends, the rate is variable, the card user completes the terms of a workout plan for debt repayment or fails to  comply with terms of a workout plan or the payment is more than 60 days late.


  • Every six months the credit card issuer must conduct reviews of accounts that have had interest rate increases. If market conditions, the creditworthiness of the card user or other factors have changed, card issuers must reduce the interest rate, if warranted.


  • Promotional or teaser rates must last for six months


  • Stop Credit card companies from unfairly allocating payments to balance with
    different interest rates. For example, balance transfers often have have different interest rates than purchases. Many credit card companies first allocate your payment toward balances with lower interest rates causing the credit card holder to pay more in finance charges.


  • Universal default is banned, except for existing card balances.
  • Stop creditors from raising interest rates on balances incurred in the past.

  • Stop creditors from charging over the limit fees on for an account that is on hold. In certain types of transactions, like deposits for motel rooms, the merchant authorizes the account for a higher amount than what's actually charged. Until that hold is released,  the creditor treats it as you've already spent the money and could determine future purchases as over the limit. This also applies to overdraft fees on debit card accounts.

  • Eliminate double billing cycle finance charges. This is the most costly method of computing finances charges and can lead to consumers paying interest on balances that have already been paid.


  • Due dates must be the same every month. If due dates fall on weekends or holidays, payments must be credit to the account on the next business day.


  • You must be allowed to opt in to "over the limit fees". If you don't opt-in, and your limit is exceed the transaction will be rejected. If you opt-i to "over the limit fees", then you must be informed
    of the amount of fees and you can opt-out at any time. These fees can only be applied once during the billing period. You can opt in verbally, electronically or in writing.


  • Cannot be charged additional fees to pay be mail, electronic transfer, telephone or other methods. Some exceptions apply here - if you want to make a lat minute expedited payment.


  • Eliminate "deceptive offers of credit."When a bank offers you a credit card with a low rate, it  needs to tell you what you need to do to get that interest rate.


  • Cannot charge up front fees more the 25% of available credit limit during the
    first year of sub prime accounts. There are some exceptions, fee restrictions don't include "over the limit", late payment or insufficient fund fees.


  • Card issuers will be required to provide new, clearer and timelier disclosures of account terms and costs before and after an account is opened


  • Statements now will include details warning consumers about high costs of making only the minimum payment.


  • Statements will have to show the monthly payment required to pay off the existing balance in 36 months. It will also show the total cost of payments and interest.


  • Minimum payments may go up. A higher percentage of the balance will be due each month, however cards issuers cannot raise the minimum more than 100% (as an example they can't raise from, say, 5%, to 10%)

 

To counter the new rules, credit card companies may begin charging annual fees or transfer your card to a variable rate card. They may also start charging fees for balance transfer offers that were once free.

Make sure you review any statements  or correspondence you receive from your credit card issuer. Since the law passed, many companies have been raising rates, increasing fees, reducing credit limits and dropping customers with large outstanding balances.

Some are also changing their balance transfer offers.  One regulation that went into effect in Feb 2010 states that card companies must apply any payment you make above the minimum to your highest-rate balance first - so people who have a 0% balance transfer and an 11.99% rate on new purchases will no longer be stuck paying off the 0% balance while interest on the balance at 11.99% continues to accrue.

Banks usually send out "Change in Terms" notices outlining the changes to your account. Make sure you read it. You will also see changes on your credit card statement that should show exactly how long it will take to pay off your card debt.

 

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  Credit Card Act - New credit card regulations