What's happening with the new credit card law?

What's happening with the new credit card law? The new consumer credit card protections are set to take effect on February 22, 2010. Some of the changes include Card issuers only able to increase interest rate percentages for a few reasons and cannot increase at all within the first year an account is open. The age of young adults has been raised to 21 years old or they can have an adult co-sign for them in order to obtain.

Why is this so important? The new credit card law will change the rules for how the new game will be played toward consumers by limiting the credit card industry's highly profitable and predatory lending practices. Consumer advocates and organizations across the country strongly support it. However, Card issuers say it will force them to raise fees in other areas and limit the available credit that consumers will have access to.

What does the new credit card law mean for me? Credit card users can expect the most dramatic changes in credit terms, interest rates and fees in years once the new federal credit card law is fully executed.

The new normal for credit cards may be more transparent with clearer to understand terms, but at a much higher upfront cost to consumer. Credit card issuers and credit industry analysts say the new credit card reform law will make credit cards more costly for all users and inaccessible for low-income borrowers and people with poor credit. The return of high annual fees seem to be without question, along with fewer cards offering rewards and it's possible that credit card bills will be payable immediately rather than after a one month grace period.
Here's the new norm: President Obama signed the Credit CARD Act of 2009 into law May 22, 2009, following passage days earlier in the Senate and the House.

What will the credit card law mean for cardholders? Millions of credit card users will avoid retroactive interest rate increases on existing card balances and have more time to pay their monthly bills, greater advance notice of changes in credit card account terms and the right to opt out of significant adjustments in terms on their accounts. That will take the shock out of "we've got you" fine print and give consumers ample time to shop around for better terms if they don't like the new ones.

The requirements are being phased in. The first batch took effect Aug. 20, 2009, and most of the provisions start Feb. 22, 2010, while some begin in August and December 2010. Once in effect, the law will also fundamentally change the way credit card issuers market, charge and advertise credit card enrollment.

Some highlights of the new credit card law:

Limited interest rate hikes: Interest rate hikes on existing balances would be permissible only under limited conditions, such as when a promotional rate ends, there is a variable rate or if the cardholder makes a late payment. Interest rates on new transactions can increase only after the first year. Significant changes in terms on accounts cannot occur without 45 days' advance notice of the change.

Limited universal default: "Universal default," the practice of raising interest rates on customers based on their payment records with other unrelated credit issuers (such as utility companies and other creditors), would end for existing credit card balances. Card issuers would still be allowed to use universal default on future credit card balances if they give at least 45 days' advance notice of the change.

The right to opt out: Consumers now have the right to opt out of or reject certain significant changes in terms on their accounts. Opting out means cardholders agree to close their accounts and pay off the balance under the old terms. They have at least five years to pay the balance.

Reduced credit limits for young adults: Credit card issuers will be banned from issuing credit cards to anyone under 21; unless they have adult co-signers on the accounts or can show proof they have enough income to repay the credit card debt. Credit card companies must stay at least 1,000 feet from college campuses when offering free pizza or other predatory incentives used to lure students in to applying for credit cards.

More time to pay monthly bills: Under the credit card law, issuers would have to give card account holders "a reasonable amount of time" to make payments on monthly bills. That means payments would be due at least 21 days after they are mailed or delivered. Consumers have complained about due dates that change without notice or are moved up, giving them less time to pay their bills and increasing the likelihood of late fees.

Clearer due dates and times: Credit card issuers would no longer be able to set early morning or other arbitrary deadlines for payments. Cut-off times set before 5 p.m. on the payment due dates would be illegal under the new credit card law. For any payments that become due at those times or on weekends, holidays or when the card issuer is closed for business will not be subject to late fees.

Highest interest balances paid first: When consumers have accounts that carry different interest rates for different types of purchases (i.e., cash advances, regular purchases, balance transfers or ATM withdrawals), payments in excess of the minimum amount due must go to balances with higher interest rates first. Current industry practice is to apply all amounts over the minimum monthly payments to the lowest-interest balances first, thus extending the time it takes to pay off higher interest rate balances.

Limits on over-limit fees: Consumers must "opt in" to over-limit fees. Those who opt out would have their transactions rejected if they exceed their credit limits, thus avoiding over-limit fees. Fees charged for going over the limit must be reasonable.

No more double-cycle billing: Finance charges on outstanding credit card balances would be computed based on purchases made in the current cycle rather than going back to the previous billing cycle to calculate interest charges. So-called two-cycle or double-cycle billing hurts consumers who pay off their balances; because they are hit with finance charges from the previous cycle even though they have paid the bill in full.

Sub-prime credit cards for people with bad credit: People who get sub-prime credit cards and are charged account-opening fees that eat up their available balances would get some relief under the new credit card law. These upfront fees cannot exceed 25 percent of the available credit limit in the first year of the card. Instead of charging high upfront fees, some issuers are considering high interest rates on these high credit risk accounts.

Minimum payments: Credit card issuers must disclose to cardholders the consequences of making only minimum payments each month, namely how long it would take to pay off the entire balance if users only made the minimum monthly payment. Issuers must also provide information on how much users must pay each month if they want to pay off their balances in 36 months, including the amount of interest.

Law doesn't cover everything: Although the reforms are the most dramatic changes in credit card laws in decades, they do not protect card users from everything. Issuers can still raise interest rates on future card purchases and there is no cap on how high interest rates can go. Business and corporate credit cards also are not covered by the protections in the CARD Act. If credit card accounts are based on variable APRs (as the majority now are), interest rates can increase as the prime rate goes up. Credit card companies can also continue to close accounts and slash credit limits abruptly, without giving cardholders advance warning. Many banks and credit card companies are already finding ways around the law and creating new fees not specifically banned by the credit card reform law.