Credit Card Legislation Changes – How They Impact You

In late May, President Barack Obama signed into law a bill that restricts how credit card  companies can charge fees and change their interest rates.  Senator Christopher J. Dodd (a Democrat from Connecticut) wrote the original legislation which ensures that credit companies will have to simplify terms and conditions of their contracts, hopefully transforming the industry in the coming months and years.  Going into effect in January, this law will affect anyone who has or will get a credit card in the future.

What all of this means to you:

Disclosure -

Credit card companies must disclose (tell you) the consquences of making only a minimum payment.  They will be required to show you exactly how much interest you would pay over time and how long it would take you to pay off the card (you might be surprised!).

Card agreements (basically the contract you sign to get the card) must be posted online, with copies also given to the Federal Reserve for posting.

Due dates for payments and late payment penalties must all be clearly displayed and outlined.

Interest Rates

No rate increases are allowed in the first year of a contract.

All cardholders must be notified 45 days before a fee, finance charge, or interest rate is increased.

You will have to be at least 60 days late before you can be charged a penalty rate on your existing balance.  If you pay on time over the following 6 months, your initial interest rates will be restored.

Interest charges can no longer be charged on debts paid on time. (Previously this was known as double-cycle billing.)

Payments

Deadlines can no longer be in the early morning (in an attempt to beat bank processing patterns).

Bills and statements will no have to be mailed out 21 days before the due date rather than the current 14 days.

Payments above the minimum will now go to the highest interest rate debts rather than the lowest, as is current practice.

Fees

Fees on subprime cards (those with low credit and high fees) will no longer be allowed.

Credit card companies will now have to get customer permission before allowing fees over their limits.

Late fees will not be charged if the issuer delays crediting a payment.

Penalty fees will have to be ‘reasonable and proportional to the violation.’

Companies will no longer be allowed to charge fees for paying unless live services are required (no more penalties for paying you bill by mail, online, or on the phone).

Gift Cards

Gift cards will no longer have ‘non-usage’ penalties (fees charged for not using a card within a certain time) or hidden fees.

Cards can no longer expire within the first five years after issuance.

Students

Students under 21 years of age will no longer be able to get a credit card without either a co-signer or a proven ability to repay any debts you incur.

The common practice of aggressively marketing to college students will be heavily limited.

All in all, this legislation is designed to help prevent the consumer (that’s you!) from the predatory practices and concerns that so many people have experienced in recent years at the hands of the credit card companies.