CARD Act Phase II: 30 Days and Counting

Odds are you've probably heard a mention or two about the Credit Card Accountability Responsibility and Disclosure Act (CARD Act). The CARD Act was signed into law by President Obama in May 2009 and was scheduled to roll out in three phases over a 15-month period. The first phase went into effect on August 20th and included the new 45-day advance notice to cardholders regarding significant account changes or interest rate increases. It also required that issuers mail out statements 21 days (rather than 14 days) before the due date.

The second phase of the roll out, which also happens to be the most extensive, is scheduled to go into effect on February 22 -- just one month from today. So what does it mean for consumers? Here's a quick rundown of the major provisions that will go into effect next month:

Interest Rate Increases:

• No more retroactive rate increases or universal default clauses. Credit card issuers will not be able to raise an interest rate on an existing balance unless the cardholder goes 60 days past due on the account.
• Credit card issuers will not be able to raise the interest rate on new accounts during the first year the account is opened and promotional rates must remain in effect for a minimum of 6 months.

Fee Restrictions:

• Over limit fees will only be allowed if the cardholder gives their consent prior to fees being charged. If the cardholder agrees to process over limit transactions, only one over limit fee is allowed per billing cycle.
• Card issuers will not be allowed to charge additional fees to cardholders for accepting payments by mail, phone or online -- but they will be able to charge a fee to expedite a payment.
• Payments received by the due date, even if the due date falls on a weekend or holiday, will not be charged a late fee. In addition, payments made at a local branch or office must be credited the same day.
• Subprime or "fee harvester" credit cards will have fee limits where non-penalty fees cannot exceed more than 25% of the credit limit when the account is opened.

Student Cards:

• Credit card issuers will need to verify proof of income or otherwise require a co-signer before issuing a credit card to consumers between the ages of 18-21.

Billing Cycle & Payment Allocation:

• Double-cycle billing, or the practice of calculating interest charges on both the current balance and the previous month's balance, will be banned.
• Any payment over the minimum balance due will be required to automatically be applied to the highest interest balance first.
• Credit card statements will be required to include a minimum payment disclosure that explains how long it will take to pay off the existing balance as well as the total cost in interest if the cardholder were to only pay the minimum amount due. They will also be required to include minimum payment and interest costs to pay off the existing balance within 3 years.
• Credit card issuers will also be required to make account terms and cardholder agreements available for their cardholders online.

The remaining provisions will go into effect on August 22, 2010 and will give consumers the right to earn back their previous interest rate if they continue to make their payments on time for 6 months. It will also include the new rules that will limit fees on gift cards and prohibit them from expiring for the first 5 years.

Even though the CARD Act is still working through the roll out, we're already seeing signs that card issuers are finding other, more creative ways of imposing fees. It'll be interesting to see how the card industry evolves as these changes take place.

Deanna Templeton is the Director of Consumer Education for Credit.com and has more than 10 years of experience in the online credit and personal finance markets, and works closely with the affiliate marketing side of the business. Deanna shares her unique insight on everything from credit and personal finance to affiliate, social media and email marketing.

Comments

[Jeff Weber]

The provision which applies all payments over the minimum to the balance with the highest interest rate is one of the best parts of the bill. Before, banks would use 0% balance transfers to entice people to move more debt over, but all payments would be used to reduce the debt at 0% instead of whatever high interest balance was there in the first place.

[Jesse Niesen]

In theory and going forward these new laws are great, BUT WATCH OUT for all of the "exceptions" to many of the protections offered by these new rules.

In the meantime, most of my subscribers and clients have experienced their credit limits lowered (harming their credit scores and credit worthiness), interest rated hiked up (increasing their monthly payments and debt-to-income ratios) and creditors switching to variable rates as opposed to fixed rates (leaving them vulnerable to greater expense and liability).

It looks good for Obama to have passed these reforms us, but the timing of it has worked against the average consumer; increasing debt amounts, jacking up minimum payments and harming credit scores to create a negative snowball into less available, more expensive credit card debt for the masses.

Thus far, these new protections have proven to be more "creditor friendly" laws.

One thing remains true: financial education and literacy is more valuable than ever, and far to costly to ignore.

[Deanna Templeton]

So right, Jesse. The timing was way off and gave credit card companies the time to proactively and methodically get all of their changes (interest rate increases, lower credit limits, account closings, etc.) in place before the law went into effect. On the flip side of things, the credit card issuers are in the business of making money so I can understand WHY they would do what they've done (not that I agree with it, but I see their side from a business perspective.) Personally I think the whole CARD Act had more of a political agenda than a consumer agenda. The CARD Act was a great idea in theory, and there ARE a couple of things that will actually benefit consumers - like the biggie that Jeff mentioned about the payments going towards the highest interest rate first. But like you said, consumer's should keep a close eye on their accounts and READ their account statements because wherever there's a law, there's usually some type of loophole somewhere in the mix. And if creditors can't make their profits through their normal means, they'll find other more creative approaches. It's just business where they're concerned.