February 8, 2010

Consumer Friendly Credit Cards?

By Karen Saley, Extension Specialist, Pinellas County Extension

The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 was signed into law by President Barack Obama on May 22, 2009. Some limited changes took place in August of 2009, but the most significant changes will begin February 22, 2010. These changes will make it easier for the consumer to understand their credit card statements because credit card companies will be required to provide clear, concise information regarding terms, agreements, and payoff amounts. There are also new rules regarding rates, fees, and limits as well as changes to billing and payments.

With close to 80 percent of Americans owning at least one credit card and nearly 50 percent carrying a balance these new rules will make it easier for consumers to understand the ramifications of using credit cards. Americans are currently paying about 15 billion dollars a year in credit card fees which makes these new rules more important than ever. Here are some of the highlights.

Your credit card company will be required to give you a 45 day notice before they can:
· Increase your interest rate
· Change annual fees, cash advance fees, and late fees
· Make other significant changes to the terms of your credit card
If your credit card issuer intends to make changes to the terms of your card, it must give you the option to cancel the card before these changes take effect. If you choose not to accept the new terms the credit card company can close your account and possibly increase your monthly payment in order to force you to pay off the balance in a shorter period of time.

Clearly defined payoff amounts:
Your credit card company will now have to disclose how long it will take to pay off your balance making the minimum payment and the total amount you will pay over that time period. Some people may or may not want to know this information, but it will certainly be an eye-opener for many. For those that take that information to heart, your statement will also show how much your monthly payment must be in order to pay off that same amount in 3 years.

There are a two warnings that must be clearly stated so the consumer will know exactly what the penalties will be if they make a late or minimum payment.

No interest rate increase for the first year:
Your card issuer can no longer arbitrarily raise your interest rate in the first year you have your credit card except in these circumstances.
· Your card has a variable interest rate
· There is an introductory rate offer that reverts to a standard rate after a certain period of time
· You are more than 60 days late in paying your bill
· If you are in a workout agreement with the bank and you do not make your payments
If your credit card company does increase your interest rate after the first year, the new rate can only be applied to new purchase. They cannot apply the higher rate to your existing balance.

Credit card issuers can no longer automatically process transactions that will put the card holder over their limit. They are required to give cardholders the opportunity to opt-in to over-the-limit fees. If you choose not to opt-in to the over-the-limit-fees, use your credit card and your purchase puts you over your limit, the transaction will be denied.

Timely mailing:
Your credit card issuer must mail your billing statement at least 21 days before your due date or you can't be charged a late fee and finance charges cannot be applied to the balance. This 21 day rule also applies to any grace period you may have on your credit card.

Universal default:
The CARD Act bans universal default. This is a clause the credit card companies use to increase your interest rate when you have made a late payment on another, unrelated credit card.

Interest calculations:
The double billing cycle method of calculating finance charges is no longer legal. The double billing cycle method of calculating interest allows the credit card issuers to calculate interest due not only on your current balance, but also on the previous months balance, even if that balance was paid in full.

These are just some of the new rules that will take effect on February 22, 2010. For more information click on the following link, and don’t forget to take a good look at your next credit card statement.

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