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The Credit Card Accountability Responsibility and Disclosure Act of 2009 (Also known as “The CARD Act” and S.414) was signed by President Obama on May 22 and the first phase of it has just taken effect (August 20), but many of us are wondering—is it going to help or hurt our efforts at debt freedom?
Credit Card companies have long done as they pleased, but many of us are finding unpleasant surprises on our latest statements. Up until August 20th, the card issuers could pretty much do as they pleased—and many did! Many accounts were closed without warning, interest rates and annual fees were jacked up in anticipation of the August 20th adoption of Phase 1 of the law.
The one account I still have a balance on had an annual fee of $75 and is now $150. The $50 companion fare on Alaska Airlines (The reason I have the card) went up to $100. Thankfully, they didn’t change my interest rate, but I pretty much have no incentive to keep the card once I’ve paid it off.
I guess I should count myself lucky—many people woke up on August 20th to find their cards unceremoniously canceled.
Here’s a breakdown of just what the CARD Act means for you, and when different measures will take effect.
August 2009—Phase 1
Requires statements to be mailed 21 days before the payment is due. (14 was industry standard).
Card issuers must give consumers 45 days notice of an interest rate hike. Issuers can then either A: Opt out and close the account (and pay the balance at the same rate) or B: Accept the new rate and keep the account open.
February 2010—Phase 2
Card issuers can only raise rates on existing balances if 1 the consumer is 60 days or more past due, 2 a promotional rate expired 3, the consumer does not complete a workout plan or 4 a variable rate increased because of movement on the index.
If a rate hike is the result of a late payment, the lower rate must be reinstated after the consumer makes six months of on-time payments.
The new law also imposes other restrictions on credit card companies which will work to ban unfair rate increases, prevent fee traps, require plain sight/plain language disclosures, and will protect students and young people. (New card applicants must be 21 years of age, unless they have a proof of reasonable income or an adult co-signer.) Universal default and double-cycle billing are no longer allowed. Over credit limit fees are now prohibited unless consumers agree to allow the transaction to go through instead of being denied.
According to a news story on the Nightly Business Report, the consumers most likely to see a cancellation are those who carry large balances or have inactive accounts. Experts say that paying off most of your balances will reduce your risk of cancellation.
It’s a good idea to take a look at the latest terms on your credit card accounts—and see if any of changed recently. You may find that your APRs have changed dramatically; you also may want to make sure your account hasn’t closed.
One final note in this new law is that there’s been a little more clarity on those pre-paid credit card “gift cards” we’ve seen so much of lately. The CARD act makes it illegal to impose a dormancy or inactivity fee, or to impose an expiration date on these cards.
