Credit Cards

The Credit CARD Act: Your Interest Rate & Account Changes

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Card-act-graphic On August 22, the final provisions outlined under the Credit Card Accountability, Responsibility and Disclosure Act of 2009, (the Credit CARD Act), are scheduled to go into effect. The new laws were enacted to put a stop to the abusive practices within the credit card industry, enhance consumer disclosures, and protect consumers under 21.

In honor of these new provisions, we thought it would be the perfect time to give a quick refresher of the major provisions in a week-long series, what they mean (in plain English), and most importantly, how they impact you. 
To kick things off, let’s look at the laws that finally put an end to the arbitrary, any time, any reason interest rate hikes. Here’s what you need to know:

Interest Rates & Account Changes Under the CARD Act:

  • Credit card issuers are required to provide 45-day advance
    written notice of any interest rate increase or any other significant
    account changes, including annual fees, cash advance fees, late fees,
  • You have the right to ‘opt-out’, or decline
    interest rate changes and new account terms. The credit card issuer
    must give you 3 billing cycles to make your decision. If you do choose
    to ‘opt-out’, you have the right to cancel the card and repay the
    remaining balance at the current rate. However, you should be aware that
    your credit card issuer can legally require you to pay back your
    remaining balance over five years – or double your previous minimum
    monthly payments.
  • Retroactive rate increases and universal default are banned.
  • Credit
    card issuers cannot raise the interest rate on a new account during the
    first year that the account is opened, except for promotional rates
    which must remain in effect for a minimum of 6 months.
  • If
    your credit card issuer does raise your interest rate after the first
    year, the new rate will only apply to new charges, except as below.
  • Your
    credit card issuer cannot raise your interest rate on your existing
    balance unless you are 60 days past due on your account.
  • If
    your rate was increased because of late payments, you must be given the
    opportunity to earn back your previous rate. By paying your account on
    time for six consecutive months, your credit card issuer must lower your
    interest rate back to the rate it was before the increase. Beginning August 22, 2010
  • If your rate was increased after January 1, 2009 for any reason, beginning in February 2011, your card issuer must review your account every six months
    to determine whether the reasons behind the rate increase still apply.
    If not, they must reduce the rate, though there is no specific amount by
    which it must be lowered.

What you need to know:
The new rules go a long way in limiting interest rate increases but
they don’t stop them altogether. They also don’t stop your credit card
issuers from closing your account, lowering your credit limit or
increasing your minimum payment.

Caveat: There’s one major
loophole with the 45-day notice requirement: variable interest rates.
If your credit card has a variable interest rate, it means the interest
rate is tied to an interest rate in the economy – such as the prime
rate – and your interest rate will increase as the index increases.
And guess what? Your credit card issuer doesn’t have to notify you in
advance for variable rate increases.

Tomorrow, we’ll review the new fee restrictions outlined under the law. Until then, we want to hear what you have to say. Are you satisfied with the protections provided under the CARD Act? Have you benefited from any of the changes or do you feel more protections are in order? What changes would you propose? Post your thoughts in the comment section below!

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