Many of the significant provisions of the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 take effect today. It bans or regulates some of the most contested practices of credit card issuers.
Since the passage of the CARD act last May, credit card issuers have been busy making changes to existing and new credit card agreements. Consumers have seen their credit limits reduced, their APRs and fees increased, annual fees instituted or raised, and the appearance of non-activity fees. Offers for Fixed APR cards have virtually disappeared in the last year. All in all, it looks like a lot of consumer pain from the legislation which was supposed to help them. In the short term, there will be increased pain for some.
Longer term is another story. There are lots of gains to consumers.
Credit card issuers have to set the due date to be the same day each month and give users at a statement at least 21 days in advance of the due date. With a stable set due date each month, more people are expected to be able to plan, schedule, and make their payments on time. Impact a significant reduction in late fees caused by ever changing due dates and varying billing cycle lengths.
For purchases already made, card issuers cant raise the rate on that balance if you keep making payments on time. Future purchases yes, but not existing balances. A payment needs to be 60 days late in most cases to raise someones APR (exception – variable rates cards varying with market interest rate changes.)
The practice of applying payments to the lowest APR balance on a card with balances at different APR rates is now regulated such that anything over the minimum payment must first be applied to the highest APR balance first. Industry practice was to apply it to the lowest APR balance first. This is a definite win for consumers carrying such balances.
The practice of applying rate increases to last months billing cycle as well as the current one by using average daily balances over two months (known as double-cycle billing is prohibited.
Unless you agree to the service from the credit card issuer, they can not charge you an over the limit fee. This has been a significant expense for consumers. Yes, they will stop the transaction from going through, but you wont get hit with these fees.
Speaking of fees, issuers can no longer charge you extra based on how you pay your bill (unless you requested expedited processing or use an actual person of theirs such as their customer service to assist in making the payment.)
Issuers also cant raise the rate on a card of a new account in the first year except:
1) When there is a special promotional period (like 6 months) that is shorter and then expires (which you knew about when you signed up.)
2) When the APR on the card is variable and tied to an interest rate index that rises.
3) When you are more than 60 days late on a payment (But it must be restored back to the original rate if you make your payments on time for 6 months. So the ooops I made one mistake on getting a payment out will not result in skyrocketed rates for evermore.)
The bottom line is that the interest rate you experience in this time period will probably be the one you expected. Again taking a surprise your rate is going up, way up. out of many consumers experiences.
Also, when an issuer is making a change to terms, fees, etc, they must give you 45 days notice with the option of opting out. Opting out is effectively closing the card. You still need to make your payments on time until the balance is gone, but the effective agreement is the terms you had before their proposed change. Here again, they are required to make up front disclose of a significant time period and the consumer has the choice to continue on new terms or not, without taking a hit on their current balances.
These are some of the more significant changes.
In the end, consumers have a clearer and more stable set of terms to do business with credit card issuers. More people are more likely to pay on time, with fewer fees, fewer surprises, and more options. Longer term, this is a significant improvement for consumers.
