The final phase of the Credit Card Accountability Responsibility and Disclosure Act of 2009 took effect on Sunday.  The new rules as summarized by US News and World Report:

Interest Rates

1. If a credit card company increases the annual percentage rate of your card, they must tell you why. While this part of the rule won’t prevent a rate increase, at least you’ll understand the reason (such as a falling credit score), and have an opportunity to address the issue.

2. If your credit card company does increase your interest rate, they must reevaluate that rate increase every six months. If the reason for the increase has been resolved, they must reduce your interest rate within 45 days of completing the reevaluation. This rule could be particularly helpful to those who have seen their credit card interest rates skyrocket for no discernable reason.

Penalty Fees

1. Generally, credit card companies will no longer be able to charge you a penalty fee of more than $25. There are some limited exceptions to this rule. For example, if the card company can prove that they incurred costs in excess of $25 as a result of a late payment, the penalty could exceed $25. And if you were late with a payment in the last six months and pay your bill late again, the penalty can go as high as $35.

2. You can also not be charged a late payment penalty that is greater than the amount of your minimum payment. This avoids the practice of card companies slapping you with a $39 late payment penalty because your were a few days late on a $15 minimum payment.

3. Credit card companies can no longer charge a fee if you don’t use the card. Called an inactivity fee, some credit cards actually hit you with a fee if you didn’t use the card enough. The new rules eliminate this practice.

4. Finally, credit card issuers cannot charge you more than one penalty fee for each transaction or event that gives rise to the fee. For example, if you were late with a payment and the penalty fee caused your account to exceed its credit limit, card companies would hit you with an over-the-limit fee in addition to the late penalty fee. The new regulations put an end to this double-penalty practice.

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New credit cardholder rules as affecting the consumer summarized by the Associated Press :

INTEREST RATES

THEN: Banks could raise the interest rate on an account at any time, including the rate on an existing balances, even if you weren’t late on payments.

NOW: The rate cannot be raised in the first year after an account is opened unless an introductory rate has come to an end. After that, cardholders must be notified 45 days in advance of any rate change.

For existing balances, rates can’t be raised unless the account is at least 60 days past due. If payments are made on time for six consecutive months, the original rate must be restored.

There’s still no cap on rates.

DISCLOSURES

THEN: The fine print on cardholder agreements was often difficult to understand. Rates, fees and penalties for other services such as cash advances, for example, could be hard to find. The impact of the interest rate on paying down a balance was hard to compute.

NOW: Cardholders will see how many months it will take to pay off a balance if only minimum payments are made. Statements will also indicate how much needs to be paid each month to pay off a balance within three years.

SERVICE FEES

THEN: Banks could charge as much as they wanted. They could assess annual fees, activation fees and other fees. This was mostly a problem for subprime cards marketed to those with poor credit scores. One popular card, for example, the Premier Bankcard, charged $256 in first-year fees for a $250 credit line.

NOW: Service fees, such as activation and annual fees, will be capped at 25 percent of the credit limit during the first year of use. After that, there is no cap.

GRACE PERIODS

THEN: Some card companies sent out statements not long before payments were due, and sometimes shifted payment due dates from month to month, meaning that payments would not always have enough time to arrive and get processed before being deemed late. As a result, some cardholders ended up getting charged interest or late fees even when they thought they were sending in payments on time.

NOW: The law requires that due dates remain consistent. Statements must be sent out 21 days before the payment due date, and finance charges and fees cannot be applied before that period is up. In practice, about half of card issuers have extended grace periods to as long as 25 days.

OVER-THE-LIMIT FEES

THEN: Banks set credit limits, then routinely allowed charges to exceed those limits. When that happened, though, the customer was charged an over-the-limit fee as high as $39. These fees were often triggered by interest charges or late-payment fees that pushed a balance over the credit limit. What’s more, multiple over-the-limit fees could get charged in a single billing cycle if the balance was paid down and another charge pushed the balance back over the limit.

NOW: The cardholder must specifically agree to permit transactions that exceed the credit limit. Only then can over-the-limit fees be charged. But the fees can’t be triggered by other fees or interest charges. Only one over-the-limit fee may be imposed during a billing cycle. No over-the-limit fees may be charged unless the cardholder has specifically agreed to permit transactions exceeding their authorized credit limit. These fees can no longer be triggered by other fees or interest charges imposed by the card issuer, and only one such fee may be imposed during a billing cycle.

In practice, several of the largest card companies have dropped these fees. Some banks are using pop-up boxes on their Web sites or other methods to obtain consumer authorization.

UNIVERSAL DEFAULT

THEN: If you made a late payment on one credit card or loan, or even late payments for obligations like utility bills, that could trigger interest rate hikes on other credit card accounts.

NOW: Card companies cannot raise interest rates on existing credit card balances. Interest rates can’t rise during the first year an account is open, unless the original agreement spelled out a promotional rate for a limited time.

Consumers with older accounts must be informed of any interest rate increase on new charges at least 45 days in advance. They must also be given a chance to opt out of the hike by canceling the account and paying down the balance at the old interest rate. If an interest rate is increased, the card company must review the account once every six months to assess whether the rate should be dropped.

STUDENTS

THEN: Students arriving on college campuses often confronted a gantlet of credit card marketers handing out T-shirts, pizza and other gifts in exchange for filling out card applications. Credit cards were frequently handed out without checking the applicant’s income sources. In 2008, 84 percent of undergraduates had at least one credit card. Average balances topped $3,100.

NOW: Credit cards may no longer be issued to anyone under age 21, unless the applicant has a co-signer, or can show independent means to repay the debt. Colleges must disclose any marketing deals they make with credit card companies. Banks are not allowed to hand out gifts on or near campuses or at college-related events.

Remember the Credit Cardholders Bill of Rights that was passed a few months ago?  Well look for some changes to be implemented by your credit card companies starting today.  The bill mandates the following rules must go into effect today:

• You have a right to reject a rate increase
• You have 5 years to repay your balance at the current rate.  In other words, credit card companies cannot raise the rate on your current balance for five years.
• Companies must provide you 45-day advance notice before a rate increase
• Bills must be mailed 21 days before they are due

The major changes with the most protections under the Credit Cardholders Bill of Rights do not go into effect until February. 

Some of the down sides of the changes is that your credit card company may now start charging you an annual fee to recoup the price gouging profits that it will no longer receive.  In addition, the credit card industry has threatened that it will be harder for consumers to get a card, it will raise interest rates, and risky borrowers may be out of luck. 

Further, the credit card industry has made blocking the creation of the Consumer Financial Protection Agency its “number 1 priority.”  The agency will protect consumers from abusive, deceptive, unfair, and harmful practices by the financial industry.  Throughout this month (August) industry insiders are on the hill and lobbying lawmakers in a major push to prevent the creation of the consumer protection agency.  The credit industry has accumulated millions and millions of dollars to instigate its campaign against increased regulation that it fears will result in a reduction of profits.  Don’t let them get away with it.

The credit card companies are already retaliating against the Credit Card Bill of Rights that passed through the Senate yesterday.  The industry has decided to go after their best customers in two ways.  First, by charging an annual fee to consumers and second by charging interest on purchases as soon as the purchase is made rather than giving the industry standard grace period.  Well the Obama administration and Congress is firing back.  The White House is actively discussing adding a new regulatory commission that regulates the credit card industry.  This would be part of the major overhaul of the financial industry that the administration has in the works.  The new commission would have broad authority to protect consumers who use mortgages, credit cards, and mutual funds.  In addition, the proposed commission’s authority would be concentrated in one place with consumer protection as one of its main priorities.  This no doubt will result in tougher rules for the financial industry generally and the credit card industry specifically.

Some of the new requirements are:

• Payment summary must show length of time it will take you to pay off your credit card bill if only the minimum payment is paid each month.  The payment summary must also include how much interest you will pay over time if only the minimum payment is made.
• Credit card bill must be sent out 21 days before payment due date
• Credit card companies cannot retroactively change the rate on existing balances unless the card is 60 days delinquent
• Consumer payments above the minimum payment applies first to balance with highest rate
• Teaser rates cannot be changed for the first year that the account is opened and promotional rates must last at least six months
• Over limit fees cannot be charged unless consumer has expressly authorized such transactions beforehand
• Minors under the age of 21 must provide consent of a parent that they will be liable for the debt or prove to the credit card company that the under 21 consumer has the means to repay the debt. 

The Obama administration and Congress hopes that this regulation will help to deter consumers from over leveraging themselves in addition to protecting consumers from predatory practices.

The Credit Card Bill of Rights bill is up for vote today by the Senate.  This bill will, among many other things, prevent credit card companies from increasing interest rates four-fold without notice or justification.  Here are a few things to think about while you’re calling your Senator.

- People who have ALWAYS paid their credit card debt 100% on-time are now seeing
 their standard interest rates raised from 7.5% (avg) to 27% or more.

- Even debit cards, which have always been billed as “same as cash”, are seeing new fees added on by banks and card companies. 

- The average credit card debt for American households is $10,000.00.

- 80,000 new credit cards were solicited last year, many to students and people  
 without ongoing employment security.

Call your Senator and tell him to vote for this bill.

UPDATE:  The bill is on its way back to the House and should be signed into law by the end of the week depending on the President’s schedule.  Woohoo!  The bill gives credit card companies nine months to comply with the new rules.  Such companies will be required to post all agreements online and allow consumers to make payments via phone or Internet free of charge.  In addition, lenders must provide consumers with a 45-day notice and an explanation before increasing interest rates.  Good job everyone for reaching out to your Senators……90-5 WOW!!!!