President Obama Signs Act to Help Consumers With Credit Cards

Well, it’s official. The credit card industry has been “sanitized” for the increased safety and benefit of U.S. consumers. The Credit Card Accountability, Responsibility, and Disclosure Act (otherwise known as the Credit CARD Act) of 2009 was signed by President Obama in May 2009, with most of the provisions taking effect in February 2010.

What does this slice of credit card reform mean to you? Let’s take a look at some of the changes that may affect you:

Retroactive interest rate increases
As it stands now, your interest rate can be increased if your credit score takes a downward turn, even if the situation involves another account. While that can still happen, the rate hike will be applied differently. The new interest rate will be applied only to new balances (not balances of items/services already purchased). Your old balance will be charged at your old rate.

This rule does not apply if you are 60 days delinquent on your account payment. However, in this case, you will be returned to your old rate if you demonstrate six consecutive on-time payments. This takes effect in August 2010.

Payments applied to balances
Let’s say you take advantage of a promotional rate (0% interest for one year on a new purchase). In addition, you take out a cash advance with your card, which will be at a higher rate than your usual rate. Your card has a number of different interest rates at this point. Today, the credit card company can apply your payment to the debt with the lowest interest rate, meaning you’d be paying a higher interest rate for a longer time. With the new rules, payments over the minimum payment will be applied to the debt with the highest rate first. This means you’ll pay down your overall balance faster because you’ll pay less in interest charges.

Notice of changes
Consumers will now get 45 days notice before key contract changes (interest rates, fees, etc.) are made. This is up from the 15 days required today. This allows consumers more time to take any action regarding their account. This does not apply to a change on your credit limit, nor does it put a cap on interest rates.

Over-the-limit fees
If you’re over your limit on a credit card, you’re allowed to make additional purchases … but many times assessed a fee for each of those transactions. The new plan means credit card companies will have to have your permission before allowing purchases that extend you over your limit and trigger a fee.

Payment timing
When you receive your billing statement now, companies have to give you only 14 days notice for payment. The new law mandates that credit card companies send statements 21 days before payment is due. This goes into effect in August 2009.

Age requirements
If you’re 18 or over, you can get a credit card without a co-signer. Under the new regulations, most consumers under age 21 will not be allowed to have a card issued in his/her name without a co-signer older than 21. In addition, that co-signer will have to give permission for any increase in credit limit on that account. However, those under 21 who prove they can repay the debt (proof of reasonable income) will be allowed to have a credit card.

These new rules are meant to protect consumers and take effect at different times between August 2009 and August 2010. Some of the new rules will have no effect on Vantage Credit Union’s credit card program in particular. For example, Vantage currently doesn’t charge an Over-the-limit fee or increase rates on delinquent accounts. Regardless, all Vantage members with our Visa or MasterCard credit cards will notice changes to the content of their credit card statements in 2010 as we comply with the new rules. 

Always remember, though, that the best insulation against any financial difficulties with credit cards is personal responsibility. A credit card is just a pretty piece of plastic until you hand it to a merchant. Your first line of defense is always yourself. Use any credit cards responsibly, and you’ll avoid the pitfalls that can come from misuse.