Credit Cards

CARD Act Round II: February 22, 2010

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Odds are you've probably heard a mention or two about the Credit Card Accountability Responsibility and Disclosure Act (CARD Act). The CARD Act was signed into law by President Obama in May 2009 and was scheduled to roll out in three phases over a 15-month period. The first phase went into effect on August 20th, 2009, and included the new 45-day advance notice to cardholders regarding significant account changes or interest rate increases. It also required that issuers mail out statements 21 days (rather than 14 days) before the due date.

The second phase of the roll out, the most extensive one, is scheduled to go into effect on February 22 — a little less than a month away. So what does it mean for consumers? Here's a quick rundown of the major provisions that will go into effect next month:

Interest Rate Increases:

  • No more retroactive rate increases or universal default clauses. Credit card issuers will not be able to raise an interest rate on an existing balance unless the cardholder goes 60 days past due on the account.
  • Credit card issuers will not be able to raise the interest rate on new accounts during the first year the account is opened and promotional rates must remain in effect for a minimum of 6 months.

Fee Restrictions:

  • Over-limit fees will only be allowed if the cardholder gives their consent prior to fees being charged. If the cardholder agrees to accept over-limit transaction fees, only one over-limit fee is allowed per billing cycle.
  • Card issuers will not be allowed to charge additional fees to cardholders for accepting payments by mail, phone, or online — but they will be able to charge a fee to expedite a payment.
  • Payments received by the due date, even if the due date falls on a weekend or holiday, will not be charged a late fee. In addition, payments made at a local branch or office must be credited the same day.
  • Sub-prime or "fee harvester" credit cards will have fee limits where non-penalty fees cannot exceed more than 25% of the credit limit when the account is opened.

Student Cards:

  • Credit card issuers will need to verify proof of income or otherwise require a co-signer before issuing a credit card to consumers between the ages of 18-21.

Billing Cycle & Payment Allocation:

  • Double-cycle billing, or the practice of calculating interest charges on both the current balance and the previous month's balance, will be banned.
  • Any payment over the minimum balance due will be required to automatically be applied to the highest interest balance first.
  • Credit card statements will be required to include a minimum payment disclosure that explains how long it will take to pay off the existing balance as well as the total cost in interest if the cardholder were to only pay the minimum amount due each month. They will also be required to include minimum payment and interest costs to pay off the existing balance within 3 years.
  • Credit card issuers will be required to make account terms and cardholder agreements available for their cardholders online.

The remaining provisions will go into effect on August 22, 2010, and will give consumers the right to earn back their previous interest rate if they continue to make their payments on time for 6 months. It will also include the new rules that will limit fees on gift cards and prohibit them from expiring for the first 5 years.

Even though the CARD Act is still working through the roll out, we're already seeing signs that card issuers are finding other and more creative ways of imposing fees. It will be interesting to see how the card industry evolves as these changes take place.

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