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9 Ways The New Credit CARD Act Of 2009 Will Affect You

By Mark Riddix

This past Monday, the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), went into effect. The CARD Act will protect consumers from unfair and deceptive practices from credit card companies. The CARD Act will save credit card holders billions of dollars over the next few years. Here’s are 9 ways the new credit card laws will affect you:

1. Limit on Rate Increases

Have you ever found yourself paying the highest possible interest rate because you paid your credit card bill one day late? In the past, paying your bill one day late meant that credit card companies would raise your interest rate to the highest default APR of 29.99 percent.  Now, your payment has to be at least 60 days late before they can raise your rate. I am not recommending that you pay your credit card bill late, because you would still be subject to late fees. You have to be notified 45 days in advance before your card company can raise your interest rate on future purchases.

2. Restrictions On Overlimit Fees.

Customers must now opt in to approve transactions which would put them over their credit limit and generate fees. The only way to be charged an over-the-limit fee now is for the cardholder to opt in to protection that lets you go over your credit limit.

3. Limits Credit Card Soliciting To Students

Do you remember going to college classes and seeing credit card companies giving out free sweatshirts and hats for filling out a credit card application? Well, not anymore! Credit card companies now have to stay 1,000 feet away from college campuses. Credit cards companies are famous for preying upon college students. Anyone under the age of 21 must have a verifiable independent income or have a co-signer to qualify for a credit card.

4. Minimum Payment Disclosure

Credit card companies must disclose to customers how long it will take to pay off their outstanding balance if they only make the minimum payment. Hopefully, customers will send in extra payments once they see how long they will be in debt making minimum payments only.

5. Fee Limits

Fees are limited on popular “fee harvester” cards offered to individuals with bad credit. Individuals with bad credit often receive cards in which all of the available credit is eaten up by fees. Fees cannot exceed 25% of the available credit in the first year. This will help put an end to some of the worst credit card companies out there.

6. No More Double Cycle Billing

Card companies charge interest on the current month’s balance and the balance from the previous month. No interest can be charged on debt paid off the previous month.

7. More Time To Pay

Credit card statements must now give cardholders a reasonable amount of time to pay. This means that credit card bills must be mailed 3 weeks before their due date. Before the Credit CARD Act, card companies could send statements two weeks before their due dates. Payments made by 5pm on the due date have to be recorded as timely. Credit card companies loved early morning due dates because it increased the chances that your payment would be received late and they could charge you a late fee.

8. Higher Interest Rate Balances Paid First

Any payment sent in above the minimum payment must be applied to the highest interest rate first. For example, if your minimum payment is $60 and you send in $100, $60 will be applied to the minimum balance and $40 will be applied to the purchases with the highest interest rate. Previously, credit card companies applied the additional money to the lowest interest rate balance. This change should make it easier for cardholders to reduce their balances faster.

9. Credit Card Industry’s Response

Banks aren’t going to just sit idly by and lose an estimated $5.5 billion dollars in fee income. So, what are banks doing in response to these changes? They are raising annual fees on credit cards and charging inactivity fees to customers who don’t use their cards enough. I expect banks to start pushing prepaid cards and payday loans through their subsidiary businesses.

Final Word

I think that these new rules are great for consumers. While the rules don’t cover all of the problems in the credit card industry, it’s a good start. The new laws will make it easier for consumers to pay down debt faster and help keep college students from getting into debt. But make sure you are fully aware of the new credit card fees designed by banks to take advantage of customers. What do you think of the new credit card rules? Do they go far enough?

(photo credit: szlea)

Editorial Disclosure: This content is not provided or commissioned by any bank, credit card issuer, hotel, or airline. Opinions expressed here are the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

Mark Riddix
Mark Riddix is the founder and president of an independent investment advisory firm that provides personalized investing and asset management consulting. Mark has written financial columns for Baltimore and Washington, D.C. area newspapers and is the author of the book, Your Financial Playbook.

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  • Monica

    I’m very happy to hear these new laws. As a recent college graduate with loan debt to pay off and a credit card, it’s refreshing to hear these changes to help people like me who were young and naive. I am curious about banks possibly charging fees for inactivity. I am not using my B of A card anymore because I am trying to pay it off. If banks are going to start charging inactivity fees I would hope they will be required to send out some kind of notification…? I really don’t want to get stuck having to use my card just to avoid a fee, when I’m trying to get it all paid off!

  • http://madsaver.com Mac

    These laws are long overdue, but have not had a positive impact in the short term. I own several credit cards and all of them jacked their interest rates sky high. I once owned a credit card with 4.99% interest for several years…now it’s over 20%. So far, no surprise annual fees, but I’m not sure what to do when that happens. I want to keep my cards for the credit history, but don’t want to pay an annual fee on any of them.

    • Karmella

      I had the same thought about keeping my longest held card(s) for the credit history, and ultimately I did take the modest annual fee hit to keep one that I thought was a good one to keep. But a few days ago I read an article explaining that canceling an older card might not be a big hit to the score automatically (above and beyond the fact that it would have a different impact depending on individual situations). I will try to go find it again and post it here if I do – I can’t recall the source off the top of my head but I remember it wasn’t anything random.

  • http://www.homeschoolblogger.com/frugalhomeschooler Wendy

    My Citibank card just went from no annual fee to a $60 annual fee. But if I just charge $2400 a year on said card, they will waive my fees. No thanks Citibank!

  • Karmella

    I have been really unhappy with the short-term consequences. For me, the rate they charge doesn’t matter, but I have gotten notices of annual fees and inactivity fees. I think that at the moment it’s mostly good for people who have gotten into credit card debt – I hope the long-term changes end up being great for all consumers.

    (I am all for helping the young and inexperienced avoid getting into credit card trouble – I really support that.)

    • Mark Riddix

      Young people should really benefit the most from the changes Karmella.

  • Emily D.

    These sound like great changes though I’m sure the credit card companies will come up with all sorts of creative new ways to drain money from their customers. I especially like that anyone under the age of 21 must have a verifiable independent income or have a co-signer to qualify for a credit card. An 18 year old with no income and a credit card spells long term trouble.

  • http://www.yourfinances101.com/blog David/Yourfinances101

    Pay your balance in full at the end of every month, and they really can’t touch you with most of this stuff

    • Mark Riddix

      That’s the best solution!

    • Winston C

      I couldn’t agree more!!! From what I have read so far, credit card companies are making crazy changes to counter these laws.

  • gina

    I am glad that there are SOME regulations on credit card companies. But, I agree that you should always beware–they are out to make ALOT of money off of you–whatever way they can! I’m sure they are already looking into any loopholes to make a buck. Best NOT to use credit, if you can swing it!

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  • CC

    This is a bunch of shizzz people! I had a low rate for a period of 12 months. Once that rate expired as most offers do, my rate jumped to 29.99%. When I asked Chase WTF??? and can you please lower that (considering my credit history is in the high 700 with out ANY negative credit) I was told I was locked into that rate for the life of the loan. To my dismay..I realize that this new act F*&%$ me big time! They are unable to cahnge the rate per the new credit act. How nice for Chase. They knew exactly what they were doing when this was put in place. F*()% Obama and F%^$# the Fed reserve!

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