New credit card rules go into effect on 22 FEB 2010. Here is what you NEED to know.

Statistical

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Tue Feb-16-10 11:39 AM
Original message

New credit card rules go into effect on 22 FEB 2010. Here is what you NEED to know.

Edited on Tue Feb-16-10 12:31 PM by Statistical

The CC reform bill passed by Congress wasn't as good as some hoped, no limits on APR for example. This lead to a lot of talk about it being "worthless", however it is not all bad. The bill bans some of the worst CC practices. It also makes CC simpler to understand and work the way most consumers will "assume" they do. The reforms go into effect on 22 FEB 2010 however many companies have already at least partially adopted them to avoid having to update systems at last minute.

Here is what you need to know:

Over-limit fees require consumer�s consent.
Wording on this is somewhat vague. It is my understanding that all cards go to �no over-limit ability� (card will be declined if purchase would put it over limit) and if consumer wants the �privilege of going over limit� they will need to specifically request it. Expect banks to market this as a feature (�oops card declined how embarrassing�). However due to the vague wording (might only apply to new accounts, or �acceptance of terms� might be sufficient to be consumer agreement) if you don�t want to ever get an over-limit fee (card declined instead) then you may want to contact CC issuer to verify you are opted-out.

�Extra� payments apply towards higher interest rate balances.
This affects card that have balances under two different rates (example $1000 in cash advance at 24.9% and $5000 in purchases at 17.8%) or promotional balances ($5000 at 0.99% APR for 1 year, all new purchases at 15.9% APR). Currently most credit providers apply payments to lowest interest rate balance thus maximizing the amount of interest paid. Of course Congress had to make it difficult. The whole payment doesn�t apply to highest interest rate. New rules will apply �extra� payments to higher balances first. Minimum payment can still be applied at CC discretion (which likely means lowest apr) however any �extra� payment must go to highest balance. For example: $5000 at 0.99% and $5000 at 15.9% APR. Minimum payment is $120. You make a $500 payment = $380 extra. The CC company will likely apply the $120 to the 0.99% balance however at a minimum the $380 must go to highest APR (15.9% in this case). CC companies CAN apply whole payment to highest balance (my USAA cc terms this) but at a minimum "extra" payment must go to highest APR.

Your due date must now be on the same calendar date every month (example: Jan 12th, Feb 12th, Mar 12th).
This means you can schedule payments each month knowing exactly when your bill needs to be paid. Bills cannot be made to run every 28 or 30 days (which result in varying due dates because of changing number of days in that month). If due date falls on weekends or holidays banks can still require payment on last business day prior to due date.

Interest rate must stay at opening rate for 12 months. No more 0% for 3 months �deals�.
Even if a consumer�s rates are raised after 12 months, the increased rate only applies to new purchases � not the balance accrued in the first 12 months. There are a few exceptions that allow a rate increase such as a 60-day delinquency on the account, a variable rate, the completion of a workout plan or temporary hardship arrangement, or an expiration of a specified period of time. Even variable rates must follow a schedule such as prime not arbitrary changes by CC company. For example if your card is 5% + prime your card rate will only change (up or down) when prime rate changes.

Statements must be mailed at least 21 days ahead of when they are due.
Currently there is no statute requirement and some banks send statements as little as 13 days before due date (even less time when you consider shipping time). This provides you with more time between when you receive your statement and when your bill is due. I would still recommend online bills & billpay so you get earlier notification.

Changes to the terms of your credit card must be given 45 days prior to the change taking affect.
Currently credit card companies are only required to give 15 days notice prior to making certain term changes.

You can �opt-out� of any card within 30 days if you don�t like the change in terms made by your credit card company
If credit card company changes terms (rate increase, limit decrease, annual fee, etc) you opt-out and your card will be closed however bank must provide options for paying off balance under terms in effect prior to opting out. Minimum repayment time is 5 years. For example: you have a 9.99% card with hefty balance on it ($10,000) bank ups interest rate to 24.99% and adds $199 annual fee. You can opt out. You will no longer be able to use card however bank must honor the 9.99% and arrange payment plans (min payment) that will result in repayment in 5 years (or your current min payment if more). Bank has the option of using a min payment amount (say 3% of balance) that decreases as balance decreases or amortize the amount (equal payments over 5 years). Amortized results in lower payments on balance but the payment doesn't decrease like min payment method. Wording of bill if vague on if CC will be required to provide both options.

Bans �universal defaults�.
Other accounts can�t be used as the basis for declaring account �delinquent�. Missing payment on another account, utility, medical bill etc cannot put your account into default. Each account is to be treated separately. As long as you meet terms of your credit card agreement that account can't be put into default. Obviously missing payments on other accounts will affect the account where payments are missed however there is no longer a "roll over" effect.

The original APR must be restored after 6 consecutive on time payments after APR is increased due to delinquency.
Under new statutes the interest rate can be increased if you are delinquent on account for 60 days however after 6 consecutive on time payments account must be restored to original APR. �on time payments� requires that you meet all terms of card account (due date, min payment, not going over limit, etc).

Want the original source? Here is the bill's text:
http://www.govtrack.us/congress/billtext.xpd?bill=h111-627

Disclaimer:
All of this is based on my own reading of publicly available information (including bill text). It is correct to the best of my knowledge however there is no guarantee expressed or implied on the accuracy of the information. I am human and can and do make mistake. Always double (or triple) check information before you make a significant financial decision based on it.