As of August 22nd, 2010, the final legislation of the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (CARD Act) go into effect. These recent credit card changes include:
Re-Evaluation Of Rate Increases
If your APR was increased by your credit card company, the credit company must now evaluate your credit activity every six months after the increase. If your credit habits that caused the increase have improved they must lower your rate where appropriate.
What you need to know: If you have your rate increased, this means you aren’t stuck with a higher interest rate for too long, provided you get your habits back on track. Make sure you follow up with your card company to make sure they are re-assessing your APR! The credit card company has 45 to reduce your APR after their evaluation.
Explanation Of Rate Increases
If your credit card company raises your Annual Percentage Rate on your account then they must provide you with specific reasons for the raise in APR in writing. No more random raises!
What you need to know: Just as credit card companies will be required to review accounts to see if they should lower APR’s, you can be sure the credit companies will be looking for places to raise them as well. Keep on top of your account and don’t give the credit issuers any reason to raise your rate.
Fees and Penalties That Are Reasonable
Your credit card issuer can’t charge you more than $25 as a late fee unless you had a late payment in the last six billing cycles (you could be charges up to $35) or the credit card company can justify higher charges because of costs incurred in trying to get the money back (think going into collection here). Also, your late fee can’t be more than what your minimum payment is (if your minimum is $17 then your late fee can’t be more than $17). And for over-the-limit fees, those can’t be more than the amount you went over (if you go over by $5 you can only be charged up to $5).
What you need to know: Make sure you pay on time (after all, it’s a huge component of your credit score)! One slip up won’t cost you as much as it used to but multiple late payments will cost you. Should you go over your credit limit by a small amount you benefit from this new rule. Still, if you are going over your credit limit you should evaluate your spending. Maxing out a credit card isn’t good for your credit.
I have to wonder how easy it will be to get the occasional late fee removed for some accounts. With lower mandated fees, credit card companies will want to hold onto any fees they can justify.
No Inactivity Fees
Used to be that a credit card company could charge you a fee if you didn’t use their card in a certain amount of time. No more.
What you need to know: No worrying about making the once-a-year charge on a card you keep but don’t use.
One Fee Per Violation
You can only be charged one fee per infraction.
What you need to know: Fees will be more fair and less convoluted for consumers.
Gift Card Protections
The recent rules also include limits on gift cards (and some pre-paid cards) in that certain gift cards must have a five-year span (unless the expiration date is clearly shown) and cards can’t decline in value or incur fees if not used in a reasonable amount of time (such as 12 months).
What you need to know: Watch the fine print on gift cards and pre-paid cards. The gift card/pre-paid card will clearly state if it will expire in less than five years.
I think these are some good rules that will help consumers better manage their credit. Shoppers still have to be careful in how they use credit cards but these new rules help protect the shopper from unfair practices on the part of the credit card company.
{ 18 comments… read them below or add one }
This definitely helps, but the real cure is people being responsible with their credit instead of relying on credit card companies to help out.
I would be interested in finding out how much of a rate decrease credit card companies will give after re-evaluating consumers.
It should always be the consumer’s responsibility to spend wisely!
That’s a good point about the rate increases. I haven’t seen anywhere that says by how much a credit card company must lower rates. Still, at least they are required to look into it and a person has the possibility of having their rate lowered.
While I agree with Daniel that it is OUR responsibility to get our finances under control, it’s awesome to have the credit card company regulated more closely.
Yes, it’s been a long time coming.
I think it’s a great start.
Agreed. I think this can really help consumers. But we’ll see how it all actually pans out.
While each one of us is responsible for our finances, at least there is some accountability on the part of the banks….they have had free reign in a lot of ways.
True, they have.
Too bad the didn’t put in an interest rate cap.
Look, it’s still a loan. I’m ok with there being an incentive to have a good credit score in order to get good interest rates.
Awesome breakdown! All the new legislature being passed gets really confusing so its really nice to see someone explaining laws like this clearly
Thanks. There is a lot of legislation and we hear how important it is but we don’t always see what the impact is on the evening news.
In reality the effect of this new government regulation has been felt most by those it was aimed to protect: the people who carry balances on their credit cards. The end result of these new regulations has been that banks accelerated raising interest rates on account holders, reduced or eliminated credit lines and made it more difficult to obtain credit as these affects have lowered the FICO scores of most account holders.
While many believe that the government regulations were needed to protect credit consumers the overall result will be that credit consumers have been injured by these new regulations. Additionally, those who do not carry debt will see new fees from financial institutions where there previously were none; for example a recent new release from Wells Fargo Bank eliminating free checking accounts for new accounts.
While some of these regulations will benefit consumers as a whole, especially those on gift cards, the overall majority will harm.
I agree that it will hurt some who have been doing the right things with their credit. With the economic turmoil we’ve had recently we’re not going to see a “middle ground” just yet. What I mean is that the card companies will raise their rates and make credit harder to come by and decrease some benefits. But as things turn around the card companies will lighten up. They’ll have to. Those with the best credit will find the best offers and will move their accounts to what benefits them the most. The card companies will compete for these customers knowing they are money in the bank and they can count on payments and transaction fees (from the retailer).
SKirk got it right. I don’t understand people who say, “Sure, borrowers need to be more judicious, but those big, mean credit card issuers…something something, they make me so mad, they need to be put in their place.”
Why? The credit card issuers didn’t violate their cardholder agreements, did they? If they did, somebody show me some proof. Let’s call this what it is – a bunch of indiscriminate, financially moronic people refused to spend less than they could afford to, then cried for Mommy to make it better. It made for good media bites – forlorn mom and dad on the verge of tears at the kitchen table while the kids stand in the corner, hungry. Let’s pan the camera left and get the foreclosure notice in the frame, too.
The credit card issuers’ lowest rung of customers, i.e. their best customers, will no longer qualify for many cards. These people will thus have even less chance to obtain credit, and some will go to extra-legal means to find it. The responsible suckers like me, who paid their bills on time because they read the agreements and didn’t like the idea of incurring interest payments, will pay. Annual fees for all, diminished rewards…I can’t wait. All because some people couldn’t budget, couldn’t take responsibility for their own ineptitude, and sought redress from an authority figure. In other words, acted like children.
Like I mentioned above I do agree with a lot of what you are saying. It is the responsibility of the consumer – Buyer Beware!
But the card companies have made it difficult to fully understand their terms and they have had a pretty loose reign in determining what their rules are. If this was only a small % of people affected I’d say they probably need to learn their lesson, but I think there are a majority of credit card users who have some story to tell of a practice from a card company they felt was unfair.
Yes, responsible people are being affected now but I think that will change. The responsible ones will keep using their cards (because they pay) and that creates transactions which the card companies thrive on. They need the top credit folks who keep using their cards. The responsible ones are the ones who will walk and find a card that’s better for them.
I think we’ll see some continued changes. Maybe there won’t be as many no fee cards or low-interest cards out there. But maybe everyone who wants a card shouldn’t necessarily have one? Maybe we would be better off if everyone’s starter card were a secured credit card first until we can prove real credit-worthiness? Then in the long run, the responsible folks (and everyone else really) don’t have to shoulder the burden of government bailouts. Just sayin’!
FFB:
I have had a great number of credit accounts in my life and I always read the terms and conditions prior to signing for anything and it drives my wife crazy as we sit in the auto dealer and I read every word of their contracts!
Unfortunately, most people do not read the terms and conditions of their contracts and then look for someone else to blame when “something goes wrong.” A great example of this is the person who bought the $400,000 home with a $1,000 monthly payment only to find out later (since they didn’t read the loan docs) that that was the payment for the first year (or other term depending on the loan) on an adjustable rate loan. Now their payment has been adjusted and they can not afford the $3,200 or more payments.
Whose fault is this – the loan or credit companies? No, they didn’t tell the customer not to read the documents and even if they did the customer at that point should have the brains to either walk away or demand to read the docs.
I would argue that these are the people who cried for the government to come in and save them by adding all this new regulation.
Since this financial recession and new government regulation started our credit industry has been affected tremendously – my wife and I have some cards which we carried balances on, not the best thing to do but we did, our payments were always paid on time or ahead of time and always for more than the monthly minimums – I consider myself to be one of the responsible ones (that and the fact that we had 25,000-75,000 credit lines on different accounts). However our credit lines have been drastically reduced on most of our accounts – this now makes my credit worse as the FICO(and other credit) formula(s) look at open balance/credit line ratios in figuring credit worthiness. Most of these accounts credit limits were taken to just above the open balances – this was their attempt at limiting losses from account holders by reducing the available credit across their portfolios.
Next after one creditor cut one of our lines that same creditor came back about 8 months later and closed another line with them because our new open balance/credit ratio on the other account was too high. Now I played by the rules and lived within the terms and conditions of the account but I still got affected by people who didn’t read their T & Cs.
Next in line, now that my open balance/credit line ratios were messed up my rates got sent through the roof – one creditor attempted to triple (yes – 3X) my rate. That line we closed and told them where they could go.
When various creditors were called and asked to explain why these changes were made the explanation was that other people had defaulted.
Did we need new government regulation – I don’t think so. Did this new regulation affect me – absolutely – the rates remained unchanged until the new regulations passed.
What should the regulation be – maybe a regulation that people READ.
These same regulations have affected millions of accounts so much so that there are very few people left with great credit. And millions who once had what was considered great credit are now credit unworthy.
I do agree that not everyone should have a credit account. In fact I now advocate that no one should have a credit card account except to use for emergency purposes and it would be best if that was a secured account so you can’t get into any trouble. I advocate that credit is like crack – you can get addicted very easily so it is best to stay away entirely. Save your credit for major purchases only like a house or car where interest rates are reasonable and you have fixed terms.
It is unfortunate that people who played by the rules are being affected. I totally agree that everyone needs to understand the terms before signing an application. But on the flip side, credit card companies aren’t entirely upfront about their terms either. They state their rules on a 2-inch wide pamphlet in a font you need a microscope to read.
A person’s best bet with a credit card is to pay off their balance every month. Then there’s no concern about late payments or interest rates. Is this always practical? Some would argue it should be.
I had one card that had it’s limit reduced as well. Fortunately it was a card we didn’t often use so our utilization wasn’t affected.
I’ve said it before – credit cards aren’t evil. It’s all in how they are used. But I do think these new rules help even the playing field and make it easier for customers to understand what they are getting into.
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