The Credit CARD Act of 2009 was a game changer for how credit card companies managed risk and earned profits. Many of the anti-consumer practices that were criticized by congressional leaders have been curbed through this law. Here are the key provisions for most consumers.
Rate Increases
There are four provisions in which a credit card issuer may still raise your interest rates:
- Advance notice of stepped rate: This allows for issuers to provide promotional rates for an initial period and then increase the rate as long as it matches the previously stated step up rate.
- Variable rates: Card issuers may adjust the rate to match changes in prime rate, but they cannot increase the margin above that index.
- 60+ days delinquent: Once you fall more than 2 months late, your creditor can increase your rate to the penalty rate indicated in your contract. To get your old rate back, you must bring the account current and make on-time payments for 6 months.
- If you were on a workout (hardship) agreement and failed to comply with those terms, then your rates can be increased.
Previously, card issuers could still raise your rates any time for any reason. After August 20, 2009, they had to provide 45 days notice of an interest rate hike. Now, they must follow these new rules.
On-Time Payments
Due dates are now fixed. Some creditors experimented with changing the dues dates of their clients, thereby causing many responsible cardholders to post late payments through their online billpay accounts. If your due date is the 12th of March, it will also be the 12th of every month thereafter.
Sundays and holidays can provide you with an extra day to get your payments in. When your due date falls on a day in which the card issuer does not accept payments, then they must treat payments received the next business day as on-time.
Finally, any payment received by the card issuer by 5:00 pm is posted as received on that day. Creditors are not able to set earlier cut-offs for payment receipts.
Double-Cycle Billing
Previously, when you paid off a balance, you could still owe interest on a portion of that balance in the next billing cycle. Card issuers would average the balance over 2 months, thereby triggering additional finance charges. Double-cycle billing is effectively prohibited unless there is a billing error or NSF payment that causes an adjustment of interest charges.
Over-the-Limit Opt In
You cannot be charged an over-the-limit fee unless you specifically request authorization for transactions that cause you to exceed your credit limit. In other words, you must opt in for the privilege to go over-the-limit. Otherwise, the additional transactions would simply be denied at the point of purchase. Additionally, if you are charged an over-the-limit fee, then the creditor may only charge subsequent OTL fees in alternate months. However, if a balance is briefly paid to slightly below the credit limit and then again exceeds the credit limit, then the lender may charge another OTL fee.
Ability to Pay
Lenders must now consider your ability to repay a debt prior to granting credit or increasing credit on an existing account. This is causing new developments in credit decisions.
First, lenders are having to justify how they are considering the applicant’s ability to pay. To do this, credit bureaus are developing models in which they estimate the household income of an applicant based on their credit usage, size of mortgages and other indicators. Many lenders are expected to subscribe to these models to substantiate their credit decisions.
The biggest impact will be felt by applicants under age 21. They may no longer qualify on their own unless they can either prove their ability to adhere to the repayment terms or secure a cosigner. If a cosigner does consent to be listed on the account, the cardholder cannot be granted credit extensions without written consent of the cosigner.
Marketing and Disclosures
The CARD Act is finally changes how the terms are disclosed. For one, there are new formats on both solicitations and on monthly statements. These formats are designed to increase visibility for consumers who want to understand what the terms of the account are. Cardholders will even start to notice year-to-date totals for fees and interest on their statements (effective July 2010).
College students will also get a break from the solicitations they previously received. Anyone under age 21 cannot be solicited directly for a credit card unless they opt in for those solicitations. No tchotchkes or trinkets may be given as an incentive to apply for an account. If card issuers want to solicit on college campuses, they must report their marketing activities publicly and to the college leadership.
So much has changed as a result of the Credit CARD Act of 2009. Consumers will begin to feel new changes as credit card issuers adapt to maintain profits. This will result in annual fees, reduction of rewards benefits and tighter credit for those with lower credit scores.
Long is a graduate of the University of North Carolina at Chapel Hill with a B.A. in Industrial Relations. He subsequently received his Certificate in Nonprofit Management from Duke University. His Certificate in Financial Planning was issued by Florida State University.
Long has achieved the Accredited Credit Counselor and Accredited Financial Counselor certifications through the Association for Financial Counseling, Planning and Education. Long originally achieved the Certified Credit Counselor designation through the National Institute for Financial Education.
In addition to years of nonprofit leadership, Long has been an innovator in the field of volunteer tax return preparation programs. He assists volunteer associations and nonprofit organizations who seek to integrate credit counseling and asset-building programs with free personal income tax preparation. His approach to using free credit reports as both an incentive and a screening tool for placement into asset-building programs has been shared with members of the National Community Tax Coalition, the EITC-Carolinas Initiative of MDC, Inc. and nonprofit groups across the Carolinas.
Long assists members of our armed forces in the Carolinas, Iowa, Rhode Island, Georgia and Germany with financial readiness. Please support our Soldiers, Marines, Airmen and Sailors!
Favorite quote:
"The democracy will cease to exist when you take away from those who are willing to work and give to those who would not."
Thomas Jefferson
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