New Credit Card Rules

On May 22, 2009, President Obama signed into law the Credit Card Act of 2009, to improve the fairness and transparency of credit card company practices. The Act takes effect in February 2010 and includes provisions related to consumer protection, improved disclosure requirements, young consumer protections, and gift cards.  In response to the new law, credit card companies have indicated plans to increase fees and take other actions that will impact credit card users in ways that are not yet fully known.

The Credit Card Act addresses some credit card company practices considered by consumer advocates to be abusive, and responds to consumer complaints about increasing hidden credit card fees and charges, abrupt and significant increases in interest rates, and other practices that hurt consumers’ ability to get out of debt.  According to White House estimates, each year consumers pay $15 billion in credit card penalty fees alone.

The following provides a brief overview of the consumer protection provisions in the law.   

• Protection of credit card holders. Credit card companies must provide at least 45 days advance written notice of increases in interest rates, fees or finances charges, and must allow consumers to cancel their accounts without penalty and without triggering an obligation to immediately repay the full amount owed.   
• Limits on fees, penalties and interest rate increases. Creditors are prohibited from increasing Annual Percentage Rates (APR), fees, or finance charges on existing balances with exceptions (such as promotional offers, variable rate terms, hardship arrangements or in response to late payments). Changing the terms of repayment of outstanding balances is prohibited, with a minimum 5 year repayment term. For new accounts, increasing interest rates, fees, or finance charges within the first year is prohibited (with exceptions).  
• Interest rate reduction. If a creditor increases a consumer’s APR based on factors like credit risk or market conditions, at least every 6 months the creditor must review accounts where the APR has been raised since January 1, 2009 to determine if the factors have changes (e.g. risk has declined) to determine whether to reduce the APR.  
• Limits on certain billing practices. Double cycle billing (where finance charges are added based on previous billing cycle balances) and penalties or fees for on-time payments are prohibited. Creditors can only charge over limit fees if the consumer opts-in to allow the creditor to complete over limit transactions. Payment method fees (whether by mail, electronic transfer, or phone) are prohibited unless they’re for expedited service by a creditor’s representative.
• Prompt and fair crediting of payments. Creditors must apply payments above the minimum payment to the card balance with the highest interest rate. If any material changes to procedures for handling payments are made that delays the crediting of payments within 60 days of the change, late fees are prohibited.
• Timing of payments. Creditors must deliver statements at least 21 days before the payment due date.  New finance charges can’t be imposed for payments made within grace periods unless the amounts upon which the charges for the period are based are included within the consumer’s statement. Due dates that change each month and charges due to weekend or holiday due dates are prohibited.
• Standards for subprime or “fee harvester” cards.  If the credit card terms require a fee in the first year more than 25 percent of the amount of credit line, no payment of fees  may be made from available credit in the account (other than late or over limit fees or fees for payment returned due to insufficient funds).

The White House has a fact sheet to help consumers understand their rights under the new law. The Consumer Protection Board also provides a summary of key provisions of the new Credit Card Act. To participate in the New York Consumer Protection Board’s Credit Card Reform Survey, which will monitor the practices of credit card companies related to the new law visit their website.

 

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