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Credit CARD Act Phase 2 – Limiting Interest Rates and Fees

by Ryan Guina

The next phase of the Credit Card ACT changes will come into effect on February 22, 2010. The Credit Card Act of 2009 was signed into law by President Obama in April of 2009 with a 15 month rollout schedule. The first phase went into effect last August 22, 2009 and the next phase is scheduled to go into effect later this month.

Credit CARD Act of 2009 Phase 1:

The first phase of the Credit CARD Act required credit card companies to give 45 days advance notice to cardholders before making any significant changes to the account holder’s terms and conditions or interest rates. The 45 day advance notice applied to increases in interest rates, certain fee changes (annual fees, cash advance fees, and late fees), or make other significant changes to the terms of your card.

The 45 day notice for rate increases does not apply to variable interest rates, expiring introductory rates, rates that are tied to an index, or when the card holder breaks previously agreed to terms (such as a payment plan).

It also required credit card companies to mail statements no later than 21 days before the due date (the previous requirement was 14 days).

Credit CARD Act of 2009 Phase 2:

The second phase goes into action on Feb 22, 2010. Here are some of the ways the second phase of the Credit CARD Act will affect consumers and credit card users:

Interest rate increases:

  • Credit card issuers cannot increase interest rates within the first 12 months of the account being opened (unless consumer makes late payments).
  • Introductory promotional rates must remain in effect for at least 6 months (great news for people who take advantage of 0% Balance Transfers).
  • Credit card issuers will not be able to raise an interest rate on an existing balance unless the cardholder goes 60 days past due on the account.
  • Increased interest rates only apply to new charges and cannot be made retroactively.
  • No universal default clauses.

Credit card fee restrictions:

  • Over limit fees. Card holders must give consent to allow card issuers to process over the limit transactions. Even with consent, only one over limit fee is allowed per billing cycle.
  • Payment processing fees. Credit card issuers will no longer be allowed to charge payment processing fees for accepting payments via mail, phone, or online, but will be allowed to charge fees for expedited payment processing.
  • Payment due date. Payments will not be considered late if they are received by 5pm on the due date, including weekends and holidays; payments made at a local branch or office must be credited the same day. (credit card companies could previously set the time payments must be received, often making the cutoff in the morning of the due date to increase the number of late payments and the fees they could charge).
  • Annual fee and non-penalty fee limits. Non-penalty fees cannot exceed more than 25% of the credit limit when the account is opened. For example, many secured credit cards currently come with annual fees almost as high as the credit limit.

Student credit cards:

  • Consumers between the ages of 18-21 will need to provide proof of income or have a co-signer before they can be approved for a student credit card.

Billing and Payment Allocation:

  • Payments must automatically be applied to the highest interest balance first. This is great for consumers who open a new credit card for a favorable interest rate, such as a 0% Balance Transfer card.
  • Credit card statements need to include a minimum payment disclosure that details how long it will take to pay off the current balance and how much interest will be paid over the life of the loan. These numbers must be given for both minimum payments and the payment need to pay the card off in 3 years.
  • Double-cycle billing will no longer be permitted (double-cycle billing calculates the average monthly balance over two months).
  • Credit card issuers must make account terms and cardholder agreements available online.

Credit CARD Act of 2009 Phase 3:

The third phase of the Credit CARD Act goes into effect on August 22, 2010 and has provisions for reinstating lower interest rates if card holders continue to make on time payments for 6 months, and there will be new rules for gift cards, limiting the fees and prohibiting the expiration of them for the first 5 years.

What are your thoughts on the Credit CARD Act?

I previously wrote some of my thoughts on the Credit CARD Act of 2009. Overall, I think these changes will clean up the industry and make it easier for consumers to know where they stand. This will benefit some people who carry a balance on their credit cards, and will likely end up hurting people who like to take advantage of rewards credit cards. Even though I am in the latter category, I support most of these changes.

What are your thoughts on these changes?


Published or updated February 10, 2010.
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{ 9 comments… read them below or add one }

1 Evan

This stuff is so frustrating. There is no way Visa, MC, AMEX, and Discover are going to just roll over take this. They didn’t on Phase 1 and won’t now. It is like group life insurance, which helps those in bad physical shape but is a bad deal for those in good financial shape. This is going to help those in bad financial shape at the direct expense of those in good financial shape.

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2 Ryan

for the most part,yes. But the competition for new customers will always remain strong, so those in good financial shape should still be able to get decent rewards cards.

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3 fredct

I’m not sure what you mean by ‘not rolling over and taking it’. Its the law. Will they find other ways to make money? Sure, but this prevents some of the most deceptive, underhanded, and unfair practices. Its about time is my opinion.

As someone is good financial shape, it’d be willing to lose a couple perks in exchange for the greater good – preventing people from being screwed quite as badly. However, I really don’t expect that to be the case. As Ryan pointed out, those in good shape remain in a strong position – you owe nothing to the card company and can jump ship at a moment’s notice… so the companies still need to offer you good products.

Contrary to (sometimes) popular belief, card companies make plenty of money off of financially strong customers (through merchant fees). If you make $1K in purchases a month between your cards, the credit card companies are turning around ~$30 in revenue off of you per month, or $36o per year. All with very very little chance of you not paying it back. It’s worth their while to keep your business.

I’ve no doubt there will be a few companies who will try to eliminate rewards programs or insert annual fees, and they will not be rewarded for trying. Their business will just go elsewhere.

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4 Evan

“I’m not sure what you mean by ‘not rolling over and taking it’. Its the law. Will they find other ways to make money? Sure, but this prevents some of the most deceptive, underhanded, and unfair practices. Its about time is my opinion”
- What I meant is exactly what you answered in the following sentence. If they are losing $XX Million from one type of eliminated fee/interest hike…it will show up somewhere else. That ‘somewhere else’ is yet to be seen.

“Their business will just go elsewhere”
- Only until it becomes the industry norm

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5 fredct

They could, but I’d much rather see them make their $XX dollars a year in a straight forward and understandable way. If they want to make back their revenue, do it in a way that everyone knows whats going on. If they do it in more sneaky, underhanded, and dirty ways then we should outlaw those too.

>> Only until it becomes the industry norm
Then the business will *still* go elsewhere – i.e. out of the industry. What you miss about financially strong customers is that if they’re not given a reason to use the cards, they won’t use them. Oh sure, they may keep one or two cards around for emergencies, but the industry will lose out on tons of usage and the associated revenue.

Unlike people in debt, the good customers can simply say adios, cut up the cards, and use debit cards, checks, and cash.

If it becomes the industry norm, the industry will be gone (here ‘the industry’ refers to cards being used as every day payment rather than as a tool for debt) and they’ll quickly figure out it wasn’t worth it.

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6 LU

I have been financially responsible all my life until 5 years ago while we got into a law suit that has drained all our money and ended up in a big credit card debt.
Is it Ok to contact one of those companies that promote to erase 60% of the credit card debt?
Most of the money we owe is due to high interest rate.
Is there a light at the end of the tunel with those self proclaimed companies that help you get back on track?
I appreciate your help.

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7 Ryan

LU, most of those companies that offer to erase your debt will seriously harm your credit score and cost you a lot of money. They don’t do anything for you that you can’t do, and in fact, most people are worse off for using them.

Here are some articles you may find helpful:

types of debt relief.
How to Find a Reputable Debt Relief Company.
how to transfer high interest credit card balances.

Best of luck.

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8 Patty

Ryan,
One of my credit card companies (Citi Universal Card) has raised my interest rate from 17% to 30.09% but everything I read says that they can not do that to current balances, only new purchases and I closed the account last December. If this is accurate then what is my recourse with this company since it seems they have raised my interest rate unlawfully.

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9 Ryan

Patty, I recommend speaking with the credit card company first and asking them to clarify their position. If you still believe this is in error, then you could try contacting the FTC.

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