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New Laws Help the Credit Card Consumer

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— Getty Images/Stockbyte Silver

On Feb. 22, a sweeping law takes effect that’s designed to permanently alter the relationship between consumers and their credit cards.

Under the Credit Card Accountability, Responsibility and Disclosure (CARD) Act, there will be new limits on interest rates and fees, and credit card statements must include more information about the extent of a consumer’s debt.

The biggest change for most consumers, experts agree, is a ban on hiking interest rates for existing balances in most cases.  After February 22, card issuers will not be able to increase their interest rates for the first year after an account is opened.  Similarly, there are new limits on credit card distribution to young adults and on marketing at college campuses.
Credit card users who carry a balance will find new mandatory information on their monthly statements, telling them how long it could take them to pay off their debt or how much they must pay to eliminate the debt in three years.

The CARD Act will also bring an end to practices such as extremely high fees for exceeding spending limits and charges for making payments over the telephone or online. Credit card issuers will also be required for the first time to apply any payment in excess of the minimum toward the balance with the highest interest rate.

Despite all the changes, credit card issuers still retain significant sway over the issuer-consumer relationship and will no doubt be on the lookout for new ways to make money.

It is likely that issuers will continue to increase fees and create additional charges—for receiving paper statements, for example—while cutting rewards as they look for new ways to keep their bottom line healthy. Also, it will likely be harder to get approved for a credit card, especially if you lack strong credit or proof of income.

What’s New

Interest rates: Credit card issuers will not be allowed to increase interest rates on existing balances unless the customer is more than 60 days late with a payment. Exceptions to this rule are if the card has a variable interest rate or if the rate is part of an expiring promotional deal.

First-year protection: For card accounts opened after Feb. 22, issuers cannot raise interest rates at all for the first year.

Over-the-limit charges: If you reach your credit limit, you will no longer be able to continue making charges, and you’ll be charged no over-the-limit fee. That is, unless you tell your card issuer that you would like to allow over-the-limit charges (and fees).

Putting debt in black and white: Statements will be required to note the amount of time it would take to pay off the current balance if the customer makes the minimum payment each month. They will spell out the monthly amount needed to pay off the current balance in three years.

Minimum payments: Any amount paid over the required minimum payment will be allocated toward the balance with the highest interest rate.

Fees: No more fees for paying by phone or online.

Tighter standards: Credit card issuers will be required to consider a person’s ability to pay by looking more closely at income, assets and current obligations before issuing credit or establishing a credit limit.

Predictability: Payments must be due on the same day every month.

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