New Credit Card Legislation Explained

Starting February 22nd, 2010, the Federal Reserve has implemented brand new rules for the credit card companies and for consumer protection as well. Here is what you need to know about the new legislation.

What Your Credit Card Company is Required to Disclose

Your credit card company is now required to let you know at least 45 days in advance before they can increase the rate of interest that you pay or any other fees that are associated with your card. This includes the following.

Your Interest Rate

Annual Fees, Cash Advance Fees and Late Fees

Other Changes to the Terms of your Cardholder Agreement

Also, if they are going to change your card, or increase your fees or APR, they must give you the choice to opt-out. That allows you to cancel your card before the new policies take effect. However, be aware that they can close your account immediately and may even be able to increase your monthly payment after cancellation.

For instance, they may require you to pay off the balance within a certain number of years, or can decide to increase your minimum payment which will result in your account being paid off faster. They do this by doubling the percentage of your balance that is being used to determine what your minimum payment will be.

There are some instances where the company is not required to send you notice of changes occurring. One of these exceptions is having a card with a variable rate that is determined by an index. Obviously, if the index changes, then so does your rate, but you will likely be familiar with how this works if you have a variable rate.

The credit card company must also disclose on your statement how long it would take to pay off the account if you made only the minimum payment, and tell you how much that you will need to pay if you want to pay it off in three years. Knowing that it could take ten years or more to pay off a balance will allow customers to make a more informed choice on whether they want to pay the minimum payment or try to pay more to get the account taken care of earlier.

Changes Regarding Rules on Rates, Limits and Fees

Another rule that credit card companies now have to follow is for the first 12 months, they cannot increase your interest rate with few exceptions. One of these exceptions is a variable interest rate. Again, if that is the case, it can change when the index changes. Also, if you signed up for an introductory APR then the interest rate can change to the regular one, as long as they disclose to you what the regular interest rate is, and as long as the introductory rate is for at least six months. Also, your rate can go up if you are more than sixty days late on your payments, or if you have an agreement with the company and don’t pay. At that point, they can increase your rates.

If the company does decide to raise the interest rate after twelve months then the new interest rate can only apply to new purchases. Purchases made before the interest rate increase will stay at the old interest rate, until that balance is paid off. Another major change is that you cannot go over your credit limit, and thus accrue large fees for an over-the-limit purchase, unless you tell your provider that you want the option to go over. If you do not choose this option, and your credit card company allows the transaction to proceed regardless, they cannot charge you an over-the-limit fee for it. Also, you can only get one over-the-limit charge per billing cycle and if you have enabled this feature you’ll be able to stop going over the limit of your credit at any time.

There is also a ceiling in place for cards that have high fees. For instance, if your credit card has an annual fee, or if you are required to pay an application fee to get the card, then those charges cannot exceed more than a quarter of the credit limit. For example, if your credit limit is $1000 then your fees for the first twelve months cannot exceed $250.

Customers under the age of 21 have to show a history of making payments or will be required to find a co-signer in order to have a credit card account. You must also get your co-signer to sign if you decide to increase your credit limit.

New Billing and Payment Regulations

There are also a few stipulations put in place regarding billing and payment procedures. One of these is a requirement that your credit card company mail your bill to you at least 21 days before it is actually due, and that your payment due date should always be on the same date every month. Another stipulation in place is that the cut-off time for payments can be no earlier than 5:00PM on the due date date. In addition, if your bill is due on a weekend or on a day that the company doesn’t process payments, such as a holiday, they are required to make the following business day your due date.

A major change put in place is that credit card companies must apply payments made to balances with the highest interest. That means that if you make more than your minimum payment, then the excess balance will be applied to whichever credit card balance has the highest interest rate.

A few notable exceptions include making a purchase that is deferred, such as a no interest balance for a period of time, which you can then opt to have your excess balance applied to if you choose before the other higher interest balances. If you choose not to do this, then any excess payments made in the two billing cycles before the deferment period ends must be applied to that deferred rate balance.

Another piece is legislation does away with two-cycle billing, forcing credit card companies to only apply interest to balances in the current cycle.

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