As the recession started to take it’s toll on the American public, the once-powerful credit card industry panicked. They scrambled to make up for their reduced profit margins by filling the gap with additional fees, raised interest rates and stricter rules that they passed onto consumers.
Bad move. In the midst of growing consumer debt, the government decided to protect the public with a slew of changes to credit card regulations, including a Credit Card Bill of Rights. Some changes are already visible, but the majority of changes to the credit card industry will be seen in 2010.
Some changes you can see now:
* Bills Sent Earlier: Credit card companies are now responsible for issuing statements and bills 21 days before the due date. Before creditors only had to send bills 14 days before the bill was due.
* A 45-Day Warning Period for Changes: Cardholders must receive a 45 day warning before creditors make any changes to their contract that may result in interest rates, fees, or finance charge increases. In the past, lenders could just raise rates at will.
The next phase of the Credit Card Bill of Rights Program will start February 22, 2010. You’ll see these changes then:
* No More Retroactive Rate Increases: Currently, credit card companies can increase the interest rates of all balances including new charges and past debt. The new law will only allow rate increases on future charges (after proper notification has been sent) and existing balances will be levied the rates that were assessed at the time of the initial purchase.
* Less Student Targeting: Credit card companies will no longer be allowed to target consumers between the ages of 18-21 if they do not have adequate income, a co-signer or have not completed a certified financial literacy course.
* Payments Will Go to Higher Rates First: If a consumer chooses to make a payment over the minimum balance required, that money will be applied directly to the debt with the highest interest rate (especially on cards carrying multiple balance transfers and charge expenses). This will reduce the the interest charges a consumer will accrue and allow them to get pay off their debt more quickly.
* No More Bait and Switch: Promotional rates (aka teaser rates) must stay in effect for at least a 6 month period.
* One-Year Guarantee on Rates: General rates must be extended to a cardholder for no less than a 1 year period.
* Rates Won’t be Raised for Unrelated Late Payments: Previously, companies were able to raise interest rates on their credit card if a consumer was late in making an unrelated payment (i.e. you pay your electrical bill late and then get hit was a charge card increase). That behavior is now illegal.
* More Over-limit Fee Restrictions: Currently, if consumers exceed their charge card limit, they can immediately be hit with excessive fees and penalties. The new laws limit over-limit fees to one per billing cycle and companies who accept credit cards must now get permission from cardholders to exceed their limit for purchases.
* No Fees for Paying Online: Consumers who opt to pay their credit card bills online or by telephone will receive no penalties for this method (unless it is a rush payment).
* No Late Fees for Bank Delays Payments received either on the due date (but not deposited by bank until next day) or paid directly at a bank branch must be credited on day it was received, preventing a late fee.
* Interest Rate Caps: Fees for sub-prime charge cards cannot exceed more then 25% of the total credit line for the first year of purchase.
* Eliminate Finance Charge Double Billing: Right now credit card companies can asses a penalty based on both the previous and current balance. Under the new law, creditors will only be allowed to charge one penalty.
The final phase of the Credit Card Bill of Rights will complete the consumer protection act by August 22, 2010 and those changes are:
* Turn Back Time on Late Payments: If a consumer is 60 days late in payment and a legal rate increase is made, and the cardholder then makes 6 on time consecutive payments, the initial lower rate must be reinstated.
* Gift Card Protection: Cards cannot expire for 5 years and there can be no penalties for non-usage for the first year of gift card ownership.