New credit card laws went into effect on February 22. Advocates applaud the new rules, saying they provide the most sweeping changes in card protections for consumers since the Truth in Lending Act of 1968.
So what do you need to know?
First off – sorry, the new law won’t help you pay off the debt you already owe. The average American was running a credit-card balance of just over $5,400 at the end of 2009, down about $200 from five years ago, according to TransUnion, a Chicago-based firm that tracks credit data.
But the new rules will make it easier for you to understand your bill and harder for companies increase your interest rate or terms on your card. The Federal Reserve has a great site listing the new rules, and tips on how to find a credit card and avoid fees: http://www.federalreserve.gov/creditcard/
Here are Five important new rights for credit card holders from the new law, according to Consumer Action:
1. No changes in terms or rates in the first year of a new card, except...
- when a promotional rate ends
- if your variable rate adjusts
- if you pay more than 60 days late.
2. No rate hikes on existing balances.
- Interest rate increases generally apply only to new transactions.
- 45 days’ advance notice of any significant changes.
- Right to decline the change, close card and pay off balance over time.
3. More time to plan for and make payments.
- Same due date every month.
- Bills sent 21 days in advance.
- Payments received by 5 p.m. must be credited that day.
4. Control and choice on over-limit fees
- Cardholder can control and avoid fees.
- Over-limit fees cannot be charged unless customer “opts in.”
5. New information on your bill.
- Length of time to pay off your current balance if you make only minimum payments.
- Strategies are given on how to pay off your current balance in three years.
- Bills explain what will happen if your payment is late.
Other new protections include...
- Whoopee! There is now a cap on high-fee cards. If your credit card company requires you to pay fees (such as an annual fee or application fee), those fees cannot total more than 25% of the initial credit limit. For example, if your initial credit limit is $500, the fees for the first year cannot be more than $125. This limit does not apply to penalty fees, such as penalties for late payments.
- Protections for students. If you are under 21, you will need to show that you are able to make payments, or you will need a cosigner, in order to open a credit card account. Also, if you are under age 21 and have a card with a cosigner and want an increase in the credit limit, your cosigner must agree in writing to the increase. As a parent, this makes perfect sense to me! Hard to believe it wasn’t a requirement before the law took effect….
The companies have complained about the law and are trying to find creative ways to recoup the profits they will lose now that they have to play by the new rules. Later this week, I’ll blog about what you need to watch out for from your credit card company. Already we have seen new fees on credit card use for overseas travel, according to the New York Times.
Stay tuned. Let me know if you get any new offerings or letters from your credit card company, too. What do you think of the new consumer protections? Did they go far enough?
