Legislation Changes on the Move
You may have heard by now that congress recently passed sweeping credit card reform laws. The credit card reform legislation was passed in order to protect consumers against predatory and unfair practices by credit card lenders. Regardless of the state you live in these new protections apply to you as they have been enacted on the federal level.
Below you will find information on how the new legislation protects credit card users across the country.
When Do The New Laws Take Effect?
The new credit card reform legislation took affect on August 20th, 2009. The credit card companies, such as Bank of America and CitiGroup had 9 months from the date the bill was signed by President Obama to get ready for the changes to current credit card regulations. As of August 20th, credit card issuers must give consumers with credit cards at least 45 days notice of any interest rate increase and must send all bills at least 21 days before the due date.
How Are Interest Rates Affected Under the Reform Legislation?
We all hear about outrageous interest rates on credit cards. We also hear about bait-and-switch tactics that credit card companies use, such as introductory APRs that encourage you to charge only to be saddled with a ridiculously higher interest rate in six months. The new credit card reform legislation requires credit card companies to refrain from raising interest rates for the first year on any card except if the card has a variable interest rate as outlined in its terms and conditions. It also requires that all introductory rates be valid for at least six months. Additionally, credit card lenders may not raise rates in the first year unless you have been more than 60 days late.
For example, if you receive a new credit card with a zero-percent interest rate, that rate must be valid for at least six months and the APR for the remaining six months of the first year must be clearly communicated. These two rates cannot be changed by the credit card company unless you are more than 60 days late in the first 12 months of owning the credit card.
Rates on Existing Balances
Another famous tactic used by credit card companies is to offer a low interest rate for a time period and then raise the rate on your entire balance after that period has ended, or to just raise the rate on your card and then apply the new, higher, rate to your entire balance even if you had no way of knowing it would ever increase.
Under the new legislation credit card companies cannot raise the rate on existing balances unless a promised promotional APR expires, the card is under a variable rate plan, or you are more than 60 days late on a payment.
So, if you have $5,000.00 on a credit card and it is a fixed-rate card, you no longer have to worry about the credit card lender suddenly doubling your interest rate on that balance unless you are severely late on the payments or you are in a well-defined introductory period.
Receiving Notice About Rate Increases
We covered allowed interest rate increases above, but what about increased interest rates on your credit cards after the first year? After you have had your card for the first year, your card issuing bank may raise the interest rate on the credit card in the event that they give you at least 45 days written notice. This notice should be very clear. They may not raise the interest rate on balances you have already accrued however, unless the card has been assigned as a variable rate interest rate from the beginning.
Other than the above the credit card issuer cannot change the terms that have been outlined in your original credit card agreement, except for the following exceptions. First, the issuer may limit your repayment period to five years. If you haven't paid off the original balance in five years the bank may change the terms of the credit card agreement, however they are still bound to notify you of the change in terms. Secondly, the issuing bank may also increase your minimum payment every month, but can only do so to the point that it is double what they original minimum payment was on the balance. For example, if you have a balance with a $35.00 minimum payment, they can increase the minimum payment up to $75.00 on the original amount under the old terms.
Maximum Charges for Fees and Penalty Interest Rates
Credit card companies make a great deal of their profit from penalty interest rates and late and over-the-limit fees and charges. A major portion of the credit card reform was to assist consumers in fighting against usurious interest rates and abusive late fees and over-the-limit fees.
Millions of people have run into financial trouble at one time or another and fallen a month or two behind on their credit card payments. In the past this has meant that the credit card companies could subject you to maximum interest rates as high as 30% for an indefinite period of time. Under the credit card reform legislation credit card lenders can only raise your rate if you are more than 60 days late and then must return you to the original rate if you make 6 monthly payments on time. Going along with this portion of the law, if a lender increases your rate, they must review the account every six months and lower the interest rate if the review indicates that your interest rate should be lowered.
Another huge painpoint when using a credit card are over-the-limit fees. Few people know if they are about to go over the limit on their credit cards. Due to this, congress no longer allows companies to charge over-the-limit fees unless you have specifically requested that you be allowed to go over your limit. This will keep you from being surprised by a fee as high as $40.00 when you are $2.00 over your assigned credit limit. Additionally, some credit card companies have been known to charge over-the-limit fees more than once in a billing cycle, this practice has been halted under the new legislation.
Some banks who issue credit cards also charge fees to pay your bill. This is, in and of itself, ridiculous. How can you ever get to a zero balance? The point of this practice is to stop you from ever reaching a zero balance. Under the Credit Card Reform Act of 2008 companies can no longer charge for payment on your card balance except if you arrange an expedited payment with a customer service representative.
Lastly, the credit card companies must also refrain from participating in two-cycle billing, a practice in which lenders look back to the prior biling cycle to calculate interest payments.
Sometimes people get into credit card debt and wonder how they were ever issued so much credit. How does a person with an annual income of $20,000.00 end up $80,000.00 in credit card debt? In the past credit card issuers often didn't consider a consumer's ability to actually repay the credit line. Under the new legislation banks must consider this factor before issuing a credit card and if they do issue the card they must consider the person's income versus the available credit limit.
Also in regard to payments, if you pay over the minimum amount, your lender must apply the amount over the minimum to the highest interest rate portion of your balance. In addition the credit card processor can no longer consider a payment late unless it was mailed or delivered, at minimum, 21 days before the due date. Your due date must also be the same every month under the new legislation.
Protection for Those Under 21
We all have heard that the average college student graduates with $3000.00 in credit card debt. WIth the ever-increasing cost of college and the ease of getting credit cards in recent years, it's no wonder. Under the new legislation credit card lenders must get a cosigner if they issue a card to someone under 21 or must verify the ability of the person to repay the credit line. In addition, congress has outlined one of the most common practices that has gone on on college campuses for decades - the free t-shirt or gift marketing. No longer can credit card companies give free gifts to college students on campus in exchange for filling out a credit card application. Lastly, many college campuses have marketing contracts with credit card companies, under the reform act, these must be disclosed publicly.
Changes to Disclosures
One of the most common complaints from consumers is that the disclosures for credit cards are not clear. Issuers are not required to disclose the total term to pay off the credit card balance as well as the total interest if the consumer makes only the minimum required payments. Credit card agreements must also be posted online and the Federal Reserve must keep a publicly accessible website for consumers.
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State Guides to Credit Card Laws
- North Carolina
- West Virginia