After graduating college several years ago I opened my first credit card [1] and fell in love. When the shiny plastic came in the mail, I read over the terms and conditions and quickly realized that almost none of it would apply to me: interest rate hikes, the grace period, cash advance fees and rules, minimum payments, etc.
And fortunately I knew myself well; in the last four years I have paid a total of $39 in finance charges—because of accidentally shutting down a bank account with an automatic payment to my credit card linked to it, and believe me I tried to fight it—and have reaped over $1,000 in gift cards as well as three free flights [2]. In other words, my relationship with my credit card companies has been totally to my advantage because I choose to use the cards solely to gain credit card rewards [3].
Fortunately I have not found myself in financial situations where I start charging more to my credit cards, nor do I have a shopping habit that has caused me to run up my limit. With all of the rules and tit-for-tat that goes on between credit card companies and consumers, if I had slipped up even once, I might have been headed down a long road of interest charges, fees, and rate hikes.
And now, with the recent passing of the Credit Card Accountability, Responsibility, and Disclosure Act that is due to come into effect on February 22, 2010, consumers who find themselves in bad financial situations will have more protection against lawyer-level language and conditions that lead to confusion, poor decisions in terms of how to get out of debt, and more money lost to interest payments.
Here are some highlights of the new legislation, and how this will protect you, the Consumer:
Protection against Random Interest Rate Hikes
Many of us, even if we were on-time with payments, received letters in the mail that our interest rates would increase within the last year. While it is still within the power of credit card companies to make these increases, cardholders now have ways to opt-out before they are affected.
- Cardholders must be given a 45 day notice
- Credit card companies are now prohibited from making an interest rate increase retroactive on an existing balance
- Cardholders now have the right to cancel their card and have 5 years to pay off the existing balance at the old interest rate if they decide to cancel
Cardholders Can Set Their Own Limits
In the last year alone, I was given three increased limits on my credit cards without my permission. Sure, I now have more money to spend if I desire, but it made me feel unsettled because I was never asked before this decision was made. This new act of legislation fixes this problem.
- Credit Card Companies must now offer consumers the option of setting their own fixed credit limit that cannot be extended
Limits on Fees
- Prohibits double cycle billing (which allowed interest charges on two full cycles of card balances)
- Prohibits charging more than 3 over-the-limit fees
- Prohibits charging interest on credit card transaction fees
- Limits fee that can be charged for method of payment (such as over the phone, by mail, etc.)
Restrictions on Fraud-like Practices Centered Around Due Dates
- Cardholders must be mailed their billing statements at a minimum 21 days before they are due (currently the minimum is 14 days)
- Payments made before 5:00 p.m. EST on the due date are no longer considered late
- Due date must fall on the same date each month
Helps you Pay off Debt Faster
- Requires card payments to be applied to the debt with the highest interest rate first (after minimum payment)
While I am sure that credit card companies will find loopholes around some of these new laws, as well as think up innovative ways to charge fees, I think this list is a great start in helping to protect consumers who may have gotten themselves into a bad situation, but who should not continue to be penalized for it while they are trying to pay down their debts [4].