Credit Card Question: Secured credit cards sure have a lot of fees. Are these cards protected by the Credit CARD Act of 2009?
Answer: Hi Fred,
Yes, indeed, secured credit cards are protected by the CARD Act. The CARD Act exempts small business credit cards, but it does cover secured credit cards.
The CARD Act even went a little further in protecting secured credit cards. Secured credit cards are targeted to those with less-than-perfect credit and you’re correct that quite a few of these cards are riddled with fees. The CARD Act limits the amount of fees that issuers can charge during the first year to 25 percent of the credit limit on the account.
These fees include items such as application fees (also called processing fees) and annual fees. So if your credit limit is $400, you can’t be required to pay fees in excess of $100 during the first year. But if you’re charged a penalty fee, such as for a late payment, the amount you owe can exceed the 25 percent limit.
Your secured credit card also enjoys the other protections of the CARD Act, such as 45-day advance notice of significant changes to the terms of your card. If you get a notice of an interest rate increase, though, note that the actual rate increase is applied to purchases you make just 14 days after the notice is mailed. But you will get 45 days before you have to pay the higher rate.
After the first year, fees may begin cropping up so always read your mail. Use a secured credit card responsibly and over time, you’ll rebuild your credit history. Once you qualify for an unsecured credit card, you’ll have more credit card choices and better terms to choose from.
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Image: Diego Torres Silvestre, via Flickr.com