In the last year or more, credit cards and the laws that govern the industry have come under serious scrutiny due to the large amounts of individuals and families facing serious debt problems involving credit cards. Card holders have been subjected to stiff fees and increasing interest rates for seemingly no reason, leaving many so far behind in payments, they had no where to turn. As the credit card industry began to spiral seriously out of control, Congress finally began to take action on behalf of the affected consumers.
Credit card practices have been unfair and deceptive for quite some time and changes need to be made to continue a healthy economy. In May 2009, President Obama signed into law the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009. The action was meant to create more protection for consumers and halt unfair and hidden fees they were being charged for being a credit card holder.
The highlights of the CARD ACT of 2009 for consumers’ sake are as follows:
Unfair Fees Banned
Credit card companies are no longer able to induce unfair rate hikes and there are no longer allowances for rate increases for any time, any reason, or by universal default. There are also no retroactive increases allowed because of a late payment. Cardholders are also to be given reasonable time of at least 21 days to make monthly payments. The CARD Act also prohibits changing due dates, weekend deadlines, and payment deadlines that are due in the middle of the day.
Credit card issuers are now required to apply all additional payments to the highest interest balance first. This measure will stop the practice of ‘double-cycle billing’ where the previous month was used to calculate interest charges for the following month.In the past, additional payments were applied to the lowest interest balances leaving the higher balances earning more interest for the credit card company.
All contracts and card terms must be clear in language with details spelled out for the consumer. The terms of the contract are not allowed to change for the first year. All promotions must be plainly disclosed.
Opt-In for Overages
Consumers must now approve transactions that would place their credit card balance over the limit rather than automatically suffer the over-the-limit penalties caused by overdrawing on the account.
Sub-Prime Fees Restricted
All fees on low-limit, bad-credit credit cards would be restricted. Many consumers with less-than-perfect credit scores were being charged ridiculously high fees and penalties because of their credit status.
Credit card issuers must now show the consequences of negative credit actions, including the release of periodic statements concerning the length of time it would take to pay off existing credit card balances and the total cost of the interest that will be paid back.
Changes for Youth Credit
The CARD Act pays special attention to credit cards being marketed and issued to young adults and college students. The credit cards issuers and respective universities must disclose all agreements made regarding the marketing of credit cards on campuses.
Gift Card Changes
The CARD Act introduces protection for gift and store cards in which fees can not be placed on inactive cards and all card terms must be clearly disclosed.
While the law has many advantages for consumer protection, it also puts accountability on the credit card companies and those that regulate them. Regulators have a duty to report to Congress each year to advise of protection enforcement for consumers and credit cards. Card issuers that are in violation of the restrictions and credit card laws will be charged significant penalties which have been increased dramatically with the new law.
Consumers have been crying out for help for some time as many were falling into debt and ultimately filing bankruptcy while their credit cards accounts were still being charged or even canceled without reason. While many consumers will benefit from the changes to the credit card industry, some feel as though the new legislation will make it more difficult for people to actually get credit cards in the first place.
There are some interesting changes here and I think overall this will help in protecting the consumer. Unfortunately, this could also mean the end to many no fee and low interest rate credit cards. Now more than ever, you need to make sure your credit scores are as high as they can be in order to get the best rates and advantages from your credit cards. Credit card companies have already started rolling out changes and have started raising rates before the legislation takes full effect.