New Credit Card Laws - FAQs
On May 22, 2009, the
president of the United States signed the Credit Card Accountability,
Responsibility, and Disclosure Act of 2009. This legislation describes
how credit card companies (and by extension, certain banks) go about
handling your money. Within the new legislation were changes to
interest rates, fee payments, the billing process and dormancy fees.
Below are some of the frequently asked questions in regards to this new
law.
1.
‘What’s changed in
regards to interest
rates?’
Credit card companies may no longer arbitrarily change your interest
rates without notifying you. Before the legislation, interest rates
could often change between one billing statement and the next. Now,
instead, they must now notify you at least forty-five days in advance
of any such change. They must also notify you in advance to any change
in the terms of the credit card agreement. Finally, credit card
companies must now wait sixty days before increasing the interest rates
on a delinquent account.
2.
‘What’s changed in
regards to late
fees?’
According to the new legislation, credit card companies must now
process your payment as being on time if it arrives by five PM on the
due date. Before this, payment due dates were often set in the early
morning hours, prior to the opening of most banks. This has become a
lamentably common trick among credit card companies, and ensures a
hefty portion of late fees. But no more. Too, there will be no more
late fees if the due date falls on a weekend or holiday, as it so often
does.
3.
‘What’s changed in
regards to the billing
process?’
Credit card companies must now send out your monthly statement at least
twenty one days before the due date. Before this, it wasn’t
odd to see your statement arriving only a few days before the due date.
Now, however, you’ll be getting it with plenty of time to
make preparations for a proper payment.
4.
‘What’s changed in
regards to multiple balance
interest rates?’
If you’re paying different interest rates on the same
card-say one for cash advance and one for balance transfer, and another
for new purchases, for instance-and you make a payment over the minimum
balance, the credit card company will have to apply it to the highest
interest debt first.
5.
‘What’s changed in
regards to student credit
cards?’
This is one of the areas where the legislation is really hitting the
credit card companies hard. If you are a student, or otherwise
underage, it will become harder for you to get a credit card now that
the new legislation has been passed. No one under twenty-one can now
acquire a credit card without the written, signed consent of a parent,
legal guardian, or spouse. Furthermore, no increase to a student
card’s credit line may be undertaken without a parent or
guardian’s consent. The only exception to this is in the case
of a student with their own income; in this case the student in
question can send in written proof and request an exemption.
6.
‘What’s changed in
regard to dormancy
fees?’
Dormancy fees are the bane of anyone who has acquired a gift card or
certificate for keeping their balance paid down. Essentially, dormancy
fees are penalty fees that occur when you have let your gift card go
unspent for too long. The new legislation will ensure that dormancy
fees do not come into effect until a minimum of five years has passed
from the issue date of the card in question. The credit card companies
will also have to print all information that pertains to your gift card
on said card.
7.
‘What’s changed in
regards to reward
programs?’
Not much, or maybe a lot. Rewards for using credit cards have long been
a staple of credit card programs. There’s been some talk that
credit card companies will be scaling back rewards programs in order to
make up for the losses they’ve incurred elsewhere. However,
doing so would turn credit cards into just another commodity. The
rewards program is what gives a particular credit card a personality or
brand identity, differentiating it from other cards. Thus, the
likelihood of this happening anytime soon is slim to none.
8.
‘So what does the new
legislation mean for us?’
All in all, the new legislation is a good thing for those of you with
high balances and trouble with paying them down. The new controls on
interest rate hikes and late fees in particular will see a larger
number of people paying down their out of control balances than ever
before. However, the credit card companies will be looking to make up
their losses elsewhere. And that means changes for those of you who
have your card balances under control. Some credit card companies are
already looking to make up their losses via annual fees-essentially
charging you for the privilege of owning a credit card. While such fees
are not often very large, they will add a sizeable addition to your
balance, especially if applied in monthly chunks rather than
arbitrarily at the end of the month. Hopefully, your credit card
company won’t be one of the ones to resort to this, but
it’s best to be prepared regardless.
The new legislation means that credit card debt will be substantially easier to pay off. With the ability of the credit card companies to use interest as a weapon against debtors removed, you’ll find it will become easier to pay down your balance. Late fees and interest increases are the leading causes of credit card debt among most Americans, and with both of these effectively neutered, we’ll probably begin to see less credit card debt, as a whole, and what there is will be paid down more effectively.
10. ‘What does the new legislation mean for credit card bankruptcy?’
Absolutely nothing, in all honesty, other than making it harder for you to reach the point where bankruptcy seems to be the only option. If you’ve already reached that point, the process will proceed much the same as it always has. The purpose of the new legislation is to make it easier for you to pay off your existing credit card debt in a timely and efficient fashion, and thus, to make bankruptcy less of a danger to the average American.
11. ‘So when does all of this happen?’
The new legislation was signed by President Obama in May 2009. It will become law in January 2010.