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?