Credit Changes February 22, 2010 – Summary of Changes

The majority of new regulations went into effect on this date. They include the following requirements:

1. Your credit card company cannot increase the interest rate or fees (APR) on your existing balance for one year after the account is opened. In other words, the so-called “retroactive rate increases” are now prohibited.

2. There are some exceptions to the above-stated rule. The card issuer can increase the APR for an existing balance if: (A) they disclose such an increase when the account was opened; (B) you’re using a variable-rate card, and the published index has increased; (C) you have completed a pre-arranged “workout” plan, such as a debt-reduction agreement; or (D) you are delinquent on a payment by 60 days or more.

3. Once your credit card account has been open for more than a year, the company can raise your interest rate. But the new / higher rate can only be applied to new purchases made after the first year. Additionally, this kind of rate increase must be disclosed to you at the time you open your account.

4. If you have a card with multiple interest rates, any amount you pay above the minimum payment must be applied to the balance with the highest interest rate first. For example, if you have a low rate for a balance that you transferred from another card, but a higher rate on all new transactions, any amount you pay over the minimum must be applied to the higher-interest balance first. This obviously works to your advantage.

5. The new credit card laws also prohibit what is commonly referred to as double-cycle billing, or two cycle billing. This is when they assign interest rate charges for the current balance as well as the average daily balance from the last billing period. Starting in February 22, 2010, the new laws will outlaw these double-cycle billing practices.

6. Some changes are designed to improve disclosures made by your credit card company. For example, when they send you your statement, it must include a box that shows you how much you’ve paid in interest and fees during the current year. Your statement must also clearly explain the consequences of making only the minimum payment each month.

7. Your statement must also tell you the monthly payment that would be required to pay off your existing balance within three years (including interest). This disclosure is particularly helpful for people who want to eliminate their credit card balances altogether, perhaps through a debt-reduction plan.

8. Your statements must also clearly show the due date for your next payment, as well as any fees that might be imposed for late payments. It must show the date after which you would encounter such a penalty.

9. Card companies can no longer change the payment due date from one month to the next. In the past, this was one of their favorite tricks used to impose penalties. Going forward, the due date for your payments must be on the same day each month.

10. To piggyback on the change mentioned above, your credit card company must accept your payment if it is received by 5 PM local time on the due date. In other words, they can no longer establish early morning deadlines as a way of imposing a late-payment fees.

11. After February 22, 2010, your credit card company will no longer allow purchases that exceed your credit limit, unless you “opt in” to such an arrangement. This was another one of the industry’s favorite tools for generating penalty fees. In the past, if you made purchases beyond your limit, the card company would allow the transaction and charge you a hefty fee. Going forward, however, you must choose to participate in such over-the-limit processing. Otherwise, these transactions will be denied at the point-of-sale.

12. With this wave of changes, there will also be some new rules relating to younger consumers. Consumers under the age of 21 must now have a cosigner to open a credit card account, or else they must document their financial ability to repay the debts. Here is some related information on the subject.

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