New Credit Card Rules Kick In

Beginning Thursday, a new law starts protecting consumers against what some call abusive practices by credit card issuers.

The first phase of the Credit Card Accountability Responsibility and Disclosure Act of 2009—better known as the Credit CARD Act—takes effect Aug. 20. That is when you must be given:

• At least 21 days to pay your monthly credit card bill without threat of a late fee, rather than the current 14 days.

• At least 45 days’ advance warning, in writing, of changes to your credit card account. Currently, only 15 days’ notice is required in most circumstances.

However, the new advance warning will not be required in some cases: if you have an introductory rate that expired, if your card carries a variable interest rate, or if you were paying a reduced rate under a hardship or “workout” plan and you failed to make your payments according to that plan.

• The right to opt out of interest rate hikes and fee increases, and to cancel your account while paying off any outstanding balance under the previous terms. Currently, issuers offer opt-out provisions only at their discretion.

Second phase starts in February 2010

Most other provisions of the Credit CARD Act take effect Feb. 22, when card issuers:

• Cannot increase interest rates on your existing balances unless you’re at least 60 days late on the account. Also, rates cannot be increased on new accounts in their first year unless you are 60 days late in payment.

• Must provide clear disclosure of terms before you open an account.

• Must honor promotional interest rates for at least six months.

• Cannot charge over-limit fees unless they obtain the account holder’s prior consent to accept and process over-limit transactions.

• Cannot charge fees or penalties for accepting payments by mail, phone, electronic transfer or any other means, unless the payment is processed through an expedited service processor.

• Are prohibited from double-cycle billing, in which a customer’s interest and finance charges are based on two months of the account’s balance. This practice hurts people who may have paid off the balance on one month but not the other.

• Are banned from universal default practices, in which cardholders’ interest rates are raised because of late payments made to others, such as mortgage or insurance companies.

Starting in July 2010

Effective July 1, if your interest rate is increased due to your being 60 days late on a credit card payment, the credit card issuer must revert back to the original rate after you complete six months of on-time payments. There will also be new rules requiring that gift cards not expire for at least five years, with a ban on inactivity fees.

Sid Kirchheimer writes about consumer and health issues.