What You Should Know about the CARD Act to Manage Your Credit

The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 focuses on your protections from credit card industry practices that have been deemed to be either unfair or just plain tricky.

Among the key protections are easier-to-understand terms, fewer retroactive interest rate increases on existing card balances, more time to pay your monthly bills, more notice of changes to your credit card terms, and the right to opt out of many changes in terms on your accounts.

Here’s a list of the top protections that consumers are due:

  • No more bait and switch: Card issuers can’t hike interest rates on existing balances except under certain conditions. Consequently, interest rates on new card charges can’t change in the first year, major terms of the agreement can’t change overnight, and you get 45 days’ advance notice of any big changes.

  • No more universal default gotcha: You may have heard of people having their rates raised on one card when they have a problem with another one (known as universal default). This practice has been severely curtailed. Card issuers may use universal default only on future credit card balances that exist at the time of the default, and they must give you at least 45 days’ notice of the change.

  • Limits on interest rate increases: Card issuers may raise your interest rate on existing balances only if

    • The rate was part of a promotional period that ended.

    • The index used to set your variable interest rate rises.

    • You’re at the end of a hardship or special payment agreement.

    • You have late payments of 60 days or more.

  • Credit-granting restrictions for young adults: Creditors can’t give credit cards to kids with no income. People under 21 must show that they have enough income to repay the card debt or have a cosigner who does. What a concept! Additionally, credit card companies must stay at least 1,000 feet away from colleges if they offer free pizza or other gifts to entice students to apply for credit cards.

    Avoid cosigning like the plague. In addition to high rates of default, missing a payment for any reason hurts your credit as well as your relationship. Rather than cosigning, make the kid(s) an authorized user on your account or get the student a debit card.

  • Graceful grace periods: Card issuers must give you “a reasonable amount of time” (at least 21 days after the bill is mailed) to pay monthly bills. More time to get your payment in should result in fewer late fees.

  • No tricky due dates or times: Card issuers can no longer set early-morning deadlines (before the mail is delivered) for payments. Cutoff times must be 5 p.m. or later on the date due, and due dates can’t be on a weekend, a holiday, or a day when the card issuer is closed for business.

  • Payments must be applied fairly: If you owe money at different rates on the same card (many cards have different rates for regular purchases versus cash advances and balance transfers), payments over the minimum due must go to the balance with the highest interest rate first. Consequently, your payment will reduce more of your balance faster.

  • Easy on the over-limit fees: Card issuers can’t charge you over-limit fees without your permission. If you opt out, or say no, transactions exceeding your credit limit are rejected. Plus, if you opt in, no fees can be larger than the amount of the overage. For example, going $10 over your limit can’t incur a fee of $39; the limit is $10.

  • No double-dealing double-cycle billing: Interest on outstanding balances must end in the billing month in which you pay off the balance. For example, your statement runs from June 1 to June 30, but the payment is due on July 20. The interest from June 30 to the payment due date of July 20 can no longer be charged if you pay off the balance in full.

  • Disclosing minimum payment impact: Card issuers must indicate how long paying off the entire balance will take if you make only the minimum monthly payment. They must also indicate how much you need to pay each month to pay off a balance in 36 months, including interest. Seeing the high cost of minimum payments enables you to make better-informed decisions about how you pay for the use of credit.

  • Restricted late fees: Late fees are limited to $25 unless you’re late more than once in a six-month period. Your late payment is not reported to the credit bureau until your account is a full 30 days past due. This restriction results in fewer and lower fees charged to your account and less credit report damage.

  • Right to opt out of changes: Card issuers must give you advance notice of changes to the terms of use for your credit cards. Therefore, you now have the right to reject many significant changes in terms to your credit card accounts.

    If you opt out of some changes, you may be required to close your account and pay off any balance under the old conditions.

Although the CARD Act provides a lot of consumer protections, it’s not all-encompassing. It doesn’t cover business and corporate accounts or interest rates on future purchases. Cards with variable or floating interest rates are subject to interest rate increases as the prime rate goes up. And a card issuer can still close your account or lower your limit without warning.

If you believe that a card issuer has violated any of the provisions of the CARD Act, contact customer service and ask for an explanation or a rebate. If you disagree with the answer, you can contact the Federal Trade Commission, your state’s attorney general or consumer protection department, or the Consumer Financial Protection Bureau’s Consumer Response Center.

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