New Credit Card Reform
"The Credit Cardholder Bill of Rights"
New legislation has been signed into law that overhauls the credit card industry and provides some much-needed protection for consumers. Commonly called the "credit card bill of rights," it is Public Law No. 111-24. Much of this law amends the Truth in Lending Act.
The law, officially known as the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009, was signed by President Obama in May 2009. The Act has an effective date of February, 2010, though a few portions of the Act went into effect in August of 2009.
Terms of the new law affect existing credit card accounts when applicable.
Probably the most significant change that has already taken effect is the additional time consumers now have in which to pay their credit card bills. Credit card companies must now mail bills no later than 21 days before the due date - an increase from 14 days.
This change may help some consumers avoid making late payments and avoid the fees and negative hit to their credit rating that occur as a result.
Creditors also must give consumers 45 days advance notice when making any significant change to the credit card contract - such as a hike in the interest rate.
Below is a summary of the bill's provisions.
General
- Creditors must consider the ability of the consumer to make required payments before approving a credit card account or increasing any credit limit.
- Credit card companies must mail bills no later than 21 days before the due date.
- Credit card issuers must give consumers 45 days advance written notice when making any significant change to the written agreement, including a raise in the interest rate, with certain exceptions.
- When closing a consumer's account, credit card companies must provide a minimum of 30 days advance notice, an explanation as to the reason, and other provisions.
- Creditors must post on the Internet the written agreement between themselves and the consumer for each open-end consumer credit plan, and provide the agreements to the Federal Reserve Board to post on its website.
- Credit card offers must notify prospective applicants that excessive credit applications can adversely affect their credit rating.
- Credit card issuers must provide a toll-free telephone number for consumers to receive information about accessing credit counseling and debt management services.
- The law directs the Federal Reserve to establish guidelines for credit card companies to provide to consumers regarding legitimate and accredited credit counseling services.
Interest Rates
- Creditors cannot raise interest rates or fees in the first 12 months unless stated in the contract.
- Promotional interest rates must be in effect for a minimum of six months.
- Credit card issuers must give consumers 45 days advance written notice when making raising the interest rate (annual percentage rate - APR) except under certain conditions. These conditions are discussed in the next item.
- Creditors cannot increase interest rates, fees, or finance charges on outstanding credit card balances except under certain conditions; such as:
- A certain time period expired (e.g. promotional) and the interest rate increase was clearly and conspicuously disclosed before the time period began.
- An index that the interest rate is based upon changed.
- a minimum payment by the consumer was not received by the creditor.
- The consumer completed or failed to comply with a workout or temporary hardship arrangement, with some stipulations.
- Credit card issuers that increase an interest rate based on factors such as consumer credit risk and market conditions should subsequently decrease the interest rate when these same factors indicate a reduction.
Payments
- Credit card companies cannot penalize consumers for making payments on-time.
- The payment due date must be the same calendar date each month, or the next business day if the date falls on a weekend or holiday.
- Creditor card issuers must use the actual date the consumer makes a credit card payment at one of its local branches for determining if the payment was made before or after the due date.
- Creditors must apply consumer payment amounts in excess of the minimum payment amount to balances with the highest interest rates if multiple interest rates are in effect.
- Credit card issuers must include a Minimum Payment Warning on each statement, including the consumer's total cost to pay the existing balance in 12, 24, and 36 months.
Fees and Finance Charges
- Credit card companies cannot charge an over-the-limit fee unless the consumer chooses over-the-limit protection on their credit card.
- Only one over-the-limit fee can be charged per billing cycle; and no more than two over-the-limit fees in two subsequent billing cycles with certain exceptions.
- Creditors cannot charge a fee for processing a credit card payment, regardless of the method, except for expedited consumer payments via telephone.
- Credit card companies cannot engage in double-cycle billing for the calculation of finance charges, with exceptions, as a result of the loss of any grace period. Double-cycle billing pertains to using both the current balance and the previous billing period's daily balance to calculate finance charges.
- A penalty fee must be reasonable and proportional to the omission or violation involved. The Federal Reserve will establish what is reasonable and proportional
Cards Issued to Minors and College Students
- Credit card companies cannot issue credit cards to consumers under the age of 21 unless one of the following apply:
- The consumer can show proof of independent financial means of repaying any debt incurred (some credit line limitations may apply)
- The application is cosigned by another individual, age 21 or older, who has means to repay debts incurred by the consumer.
- Credit card companies cannot raise the credit limit on an account where the consumer is under the age of 21 and there is a cosigner unless approved by the cosigner.
- Credit card issuers cannot offer college students tangible items to induce them to sign up for an open end credit card account if the offer is made on or near the college, or at an event sponsored by the college.
- Colleges must disclose publicly any agreement they have made with a creditor for the purpose of marketing the company's credit card.
- Colleges should consider establishing policies requiring notification from credit card issuers when and where credit card marketing will occur. Colleges should also consider offering credit card and debt education and counseling as part of new student orientation.
Gift Cards
- This law amends the Electronic Fund Transfer Act to declare it unlawful for gift certificates, store gift cards, or general-use prepaid cards to be sold with expiration dates, service fees, inactivity fees, or dormancy fees.
Credit Bureaus
- Creditors must remove information provided to a consumer reporting agency about new credit card accounts if the consumer does not activate the credit card within 45 days.
- This law amends the Fair Credit Reporting Act in requiring any advertisement for a free credit report to disclose prominently that free credit reports are available under federal law at AnnualCreditReport.com (or other authorized source).
- This law amends the Fair Credit Reporting Act in requiring credit reporting agencies to provide free credit reports in the native language of certain non-English speaking consumers.
This is a partial list of the provisions in H.R. 627. The law includes other general provisions, additional regulations for colleges, and provisions regarding credit cards for Small Businesses. And since this is a summary report, not all exclusions and exceptions can be included.
Therefore, we encourage you to read the text of the law for yourself. It is available from The Library of Congress website by following these instructions: In the Search box enter HR627 and choose "Bill Number" from the dropdown menu. Press "Search"at the bottom of the window. From the next window, click "All Information (except text)."
You can also read the entire Act, Public Law No. 111-24 at the U.S. Government Printing Office website.
We hope this information has been helpful. Please see our disclaimer below. Cheers!
Disclaimer: Keynote Support is providing general information in a highly readable format as a service to the visitor. We have made every effort to provide information accurate as to the date of this article, but the reader cannot infer from this article that Keynote Support is providing financial advice. Please consult with your financial advisor.
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